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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.

Suggested Citation

  • Richard K. Lyons, 2001. "Foreign exchange: macro puzzles, micro tools," Pacific Basin Working Paper Series 2001-10, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfpb:2001-10
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    Cited by:

    1. Christian, Mueller-Kademann, 2009. "Puzzle solver," MPRA Paper 19852, University Library of Munich, Germany.
    2. Müller, Christian, 2012. "A new interpretation of known facts: The case of two-way causality between trading and volatility," Economic Modelling, Elsevier, vol. 29(3), pages 664-670.

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    Keywords

    Foreign exchange rates;

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