Short-run Exchange-Rate Dynamics: Theory and Evidence

Publikation: Working paperForskning

  • John A. Carlson, Purdue University, USA
  • Christian Møller Dahl, Danmark
  • Carol L. Osler, Brandeis University, USA
  • Institut for Økonomi
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 is
valuable to us as scientists since, like evidence of macroeconomic regularities, it can
provide critical guidance for designing exchange-rate models. This paper presents an
optimizing model of short-run exchange-rate dynamics consistent with both the micro evidence
and the macro evidence, the first such model of which we are aware. With respect to
microeconomics, the model is consistent with the institutional structure of currency markets,
it accurately reflects the constraints and objectives faced by the major participants, and it
fits key stylized facts concerning returns and order flow. With respect to macroeconomics,
the model is consistent with most of the major puzzles that have emerged under floating rates.
OriginalsprogEngelsk
UdgivelsesstedAarhus
UdgiverInstitut for Økonomi, Aarhus Universitet
Antal sider56
StatusUdgivet - 2008

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