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How should we think about markets for foreign exchange?

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  • Pippenger, John
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    Abstract

    As support for traditional asset models of the foreign exchange market fades, there is growing interest in more general models that include flows from international trade and international investment. One advantage of flow models is that they fit naturally into the recent literature on microstructure, particularly the work on order flow. My objective here is to use intervention data to help discriminate between traditional asset models of the foreign exchange market and more general flow models. The evidence supports a flow approach.

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    File URL: http://www.escholarship.org/uc/item/3w40w1b5.pdf;origin=repeccitec
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    Bibliographic Info

    Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt3w40w1b5.

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    Date of creation: 07 Nov 2007
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    Handle: RePEc:cdl:ucsbec:qt3w40w1b5

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    Keywords: exchange rates; foreign exchange markets; intervention;

    References

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    1. Christopher J. Neely, 2001. "The practice of central bank intervention: looking under the hood," Review, Federal Reserve Bank of St. Louis, issue May, pages 1-10.
    2. Martin D. D. Evans & Richard K. Lyons, 2005. "Understanding Order Flow," NBER Working Papers 11748, National Bureau of Economic Research, Inc.
    3. Fatum, Rasmus & Hutchison, Michael M., 2003. "Effectiveness of Official Daily Foreign Exchange Market Intervention Operations in Japan," Santa Cruz Department of Economics, Working Paper Series qt3rg5p5j2, Department of Economics, UC Santa Cruz.
    4. Galati, Gabriele & Melick, William & Micu, Marian, 2005. "Foreign exchange market intervention and expectations: The yen/dollar exchange rate," Journal of International Money and Finance, Elsevier, vol. 24(6), pages 982-1011, October.
    5. Rasmus Fatum & Michael M. Hutchison, . "Is Sterilized Foreign Exchange Intervention Effective After All? An Event Study Approach," EPRU Working Paper Series 99-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    6. Carol L. Osler, 2006. "Macro lessons from microstructure," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(1), pages 55-80.
    7. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    8. Baillie, Richard T. & Osterberg, William P., 1997. "Why do central banks intervene?," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 909-919, December.
    9. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 685-718.
    10. Kathryn M.E. Dominguez, 2003. "When Do Central Bank Interventions Influence Intra-Daily and Longer-Term Exchange Rate Movements?," NBER Working Papers 9875, National Bureau of Economic Research, Inc.
    11. Richard Payne, 2001. "A Transaction Level Study of the Effects of Central Bank Intervention on Exchange Rates," FMG Discussion Papers dp355, Financial Markets Group.
    12. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
    13. Kearns, Jonathan & Rigobon, Roberto, 2005. "Identifying the efficacy of central bank interventions: evidence from Australia and Japan," Journal of International Economics, Elsevier, vol. 66(1), pages 31-48, May.
    14. Pippenger, John, 2003. "Modeling foreign exchange intervention: stock versus stock adjustment," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(2), pages 137-156, April.
    15. Gartner, Manfred, 1987. "Intervention Policy under Floating Exchange Rates: An Analysis of the Swiss Case," Economica, London School of Economics and Political Science, vol. 54(216), pages 439-53, November.
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