Department of Economics and Business Economics

Short-run Exchange-Rate Dynamics: Theory and Evidence

Research output: Working paperResearch

  • John A. Carlson, Purdue University, United States
  • Christian Møller Dahl
  • Carol L. Osler, Brandeis University, United States
  • School of Economics and Management
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.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages56
Publication statusPublished - 2008

    Research areas

  • Exchange-rate dynamics; currency market microstructure

See relations at Aarhus University Citationformats

ID: 9853772