Fixed versus Flexible: lessons from EMS order Flow

Michael Moore, R.K. Lyons, W.P. Killeen

Research output: Contribution to journalArticlepeer-review

60 Citations (Scopus)


We extend the literature on regime-dependent volatility in two ways. First, our microstructural model provides a qualitatively new explanation. Second, we test implications of our model using Europe's recent shift to rigidly fixed rates (EMS to EMU). In the model, shocks to order flow induce more volatility under flexible rates because the elasticity of speculative demand is (endogenously) low, leading to pronounced portfolio-balance effects. New data on FF/DM transactions show that order flow had persistent effects on the exchange rate before EMU parities were announced. After announcement, the FF/DM rate was decoupled from order flow, as the model predicts.
Original languageEnglish
Pages (from-to)551-579
Number of pages29
JournalJournal of International Money and Finance
Issue number4
Publication statusPublished - Jun 2006

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance


Dive into the research topics of 'Fixed versus Flexible: lessons from EMS order Flow'. Together they form a unique fingerprint.

Cite this