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186CHAPTER 6. FOREIGN EXCHANGE MARKET EFFICIENCYagainst the rationality of the survey expectations. In addition,the slope estimates typically exceed 1 indicating that survey respondentsevidently place too much weight on the forward ratewhen predicting the future spot. That is, an increase in the forwardpremium predicts that the survey forecast will exceed thefuture spot rate.2. Estimates of β 2 are generally insigniÞcantly different from 1. Thissuggests that survey respondents do not believe that there is arisk premium in the forward foreign exchange rate. Respondentsuse the forward rate as a predictor of the future spot. They areputting too much weight on the forward rate and are formingtheir expectations irrationally in light of the empirically observedforward rate bias.We should point out that some economists are skeptical about theaccuracy of survey data and therefore about the robustness of resultsobtained from the analyses of these data. They question whether thereare sufficient incentives for survey respondents to truthfully report theirpredictions and believe that you should study what market participantsdo, not what they say.6.5 The ‘Peso Problem’On the surface, systematic forecast errors suggests that market participantsare repeatedly making the same mistake. It would seem thatpeople cannot be rational if they do not learn from their past mistakes.The ‘peso problem’ is a rational expectations explanation forpersistent and serially correlated forecast errors as typiÞed in the surveydata. Until this point, we have assumed that economic agents knowwith complete certainty, the model that describes the economic environment.That is, they know the processes including the parametervalues governing the exogenous state variables, the forms of the utilityfunctions and production functions and so forth. In short, they knowand understand everything that we write down about the economicenvironment.