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Short-run Exchange-rate Dynamics: Theory And Evidence

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Author Info

  • John A. Carlson

    (Purdue University)

  • Christian M. Dahl

    (University of Aarhus)

  • Carol L. Osler

    () (International Business School, Brandeis University)

Abstract

Recent research has revealed a wealth of information about the microeconomics of currency markets and thus the determination of exchange rates at short horizons. This information should help in designing exchange-rate models. This paper analyzes an existing model that was previously demonstrated to be consistent with most of the major puzzles that have emerged under floating rates. It shows that this model is also consistent with most of the major new insights from microstructure. The model is consistent with the institutional structure of currency markets, it accurately reflects the constraints and objectives of major participants, and it fits key stylized facts concerning returns and order flow.

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File URL: http://www.brandeis.edu/departments/economics/RePEc/brd/doc/Brandeis_WP39.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by Brandeis University, Department of Economics and International Businesss School in its series Working Papers with number 39.

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Length: 48 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:brd:wpaper:39

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Postal: MS032, P.O. Box 9110, Waltham, MA 02454-9110
Web page: http://www.brandeis.edu/departments/economics/
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References

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Cited by:
  1. Maurice J. Roche & Michael J. Moore, 2009. "Solving Exchange Rate Puzzles with neither Sticky Prices nor Trade Costs," Working Papers 001, Ryerson University, Department of Economics.
  2. Tracy Yue Wang & David Hirshleifer & Bing Han, 2010. "Investor Overconfidence and the Forward Discount Puzzle," 2010 Meeting Papers 1201, Society for Economic Dynamics.
  3. Carol Osler & Xuhang Wang, 2012. "The Microstructure of Currency Markets," Working Papers 49, Brandeis University, Department of Economics and International Businesss School.
  4. Michael King & Carol Osler & Dagfinn Rime, 2012. "The Market Microstructure Approach to Foreign Exchange: Looking Back and Looking Forward," Working Papers 54, Brandeis University, Department of Economics and International Businesss School.
  5. Martin Grandes & Marcel Peter & Nicolas Pinaud, 2010. "Pricing the Currency Premium Under Flexible Exchange Rates: Evidence from South Africa," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(60), pages 7-52, October -.

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