IDEAS home Printed from https://ideas.repec.org/a/icf/icfjmo/v07y2009i3-4p101-115.html
   My bibliography  Save this article

Market Microstructure Approach to the Exchange Rate Determination Puzzle

Author

Listed:
  • Thabo M Mokoena
  • Rangan Gupta
  • Renee van Eyden

Abstract

Market microstructure approach claims that the imbalances between ‘buyer-initiated and seller-initiated trades’ in foreign exchange markets are indicative of the transmission link between exchange rates and fundamental determinants of exchange rates. In the context of the exchange rate determination puzzle, this paper uses Autoregressive Distributed Lag (ARDL) model to discuss the market microstructure approach from the standpoint of hybrid models that integrate order flow, fundamentals and non-fundamental variables to establish the determinants of the rand-dollar exchange rate. Among the non-fundamentals considered are the Economist’s commodity price index, and a proxy for country risk—the differential between the Global Emerging Market Bond Index and the South African long-term bond. The results, based on the Schwarz Bayesian Criterion, used for choosing a model’s lag length, show that there is a long-run relationship between the rand-dollar real exchange rate, non-fundamentals, fundamentals and the proxy for order flow, which is the dollar-denominated daily net turnover in the South African markets.

Suggested Citation

  • Thabo M Mokoena & Rangan Gupta & Renee van Eyden, 2009. "Market Microstructure Approach to the Exchange Rate Determination Puzzle," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(3-4), pages 101-115, August.
  • Handle: RePEc:icf:icfjmo:v:07:y:2009:i:3-4:p:101-115
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Thabo m. Mokoena & Rangan Gupta & Reneé Van eyden, 2009. "Testing For Ppp Using Sadc Real Exchange Rates," South African Journal of Economics, Economic Society of South Africa, vol. 77(3), pages 351-362, September.
    2. Katusiime, Lorna & Shamsuddin, Abul & Agbola, Frank W., 2015. "Macroeconomic and market microstructure modelling of Ugandan exchange rate," Economic Modelling, Elsevier, vol. 45(C), pages 175-186.

    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:icf:icfjmo:v:07:y:2009:i:3-4:p:101-115. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (G R K Murty). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.