Premium
A GUIDED TOUR OF THE MARKET MICROSTRUCTURE APPROACH TO EXCHANGE RATE DETERMINATION
Author(s) -
Vitale Paolo
Publication year - 2007
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/j.1467-6419.2007.00524.x
Subject(s) - exchange rate , economics , market microstructure , foreign exchange market , foreign exchange , interest rate parity , monetary economics , econometrics , finance , order (exchange)
We propose a critical review of recent developments in exchange rate economics which have offered a novel approach to exchange rate determination. This new strand of research, the market microstructure approach to exchange rates, is motivated by some very stark empirical evidence, relating exchange rate dynamics to the imbalance in the sequence of purchases and sales of foreign currencies in the markets for foreign exchange. Through our review we outline the results this new strand of research has achieved alongside its open questions and future challenges.