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Foreign exchange: macro puzzles, micro tools

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  • Richard K. Lyons

Abstract

This paper reviews recent progress in applying information-theoretic tools to long-standing exchange rate puzzles. I begin by distinguishing the traditional public information approach (e.g. monetary models, including new open economy models) from the newer dispersed information approach. (The latter focuses on how information is aggregated in the trading process.) I then review empirical results from the dispersed information approach and relate them to two key puzzles, the determination puzzle and the excess volatility puzzle. The dispersed information approach has made progress on both.

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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

Volume (Year): (2002)
Issue (Month): ()
Pages: 51-69

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Handle: RePEc:fip:fedfer:y:2002:p:51-69

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Keywords: Foreign exchange rates ; Information theory;

References

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  1. Eichenbaum, Martin, 1992. "'Interpreting the macroeconomic time series facts: The effects of monetary policy' : by Christopher Sims," European Economic Review, Elsevier, vol. 36(5), pages 1001-1011, June.
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  7. Tor Einarsson & Milton H. Marquis, 2000. "Bank intermediation and persistent liquidity effects in the presence of a frictionless bond market," Working Paper Series 2000-08, Federal Reserve Bank of San Francisco.
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Cited by:
  1. Wagner, Christian, 2009. "Risk-Premia, Carry-Trade Dynamics, and Economic Value of Currency Speculation," MPRA Paper 21125, University Library of Munich, Germany.
  2. Liew, Venus Khim-Sen & Baharumshah, Ahmad Zubaidi & Habibullah, Muzafar Shah & Midi, Habshah, 2008. "Monetary exchange rate model: supportive evidence from nonlinear testing procedures," MPRA Paper 7293, University Library of Munich, Germany.

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