Order Flow and the Monetary Model of Exchange Rates: Evidence from a Novel Data Set

Menzie D. Chinn; Michael J. Moore

doi:10.1111/j.1538-4616.2011.00460.x

Order Flow and the Monetary Model of Exchange Rates: Evidence from a Novel Data Set

Menzie D. Chinn, Michael J. Moore

Research output: Contribution to journal › Article › peer-review

36 Citations (Scopus)

Abstract

We propose an exchange rate model that is a hybrid of the conventional specification with monetary fundamentals and the Evans–Lyons microstructure approach. We estimate a model augmented with order flow variables, using a unique data set: almost 100 monthly observations on interdealer order flow on dollar/euro and dollar/yen. The augmented macroeconomic, or “hybrid,” model exhibits greater in-sample stability and out of sample forecasting improvement vis-à-vis the basic macroeconomic and random walk specifications.

Original language	English
Pages (from-to)	1599-1624
Number of pages	26
Journal	Journal of Money Credit and Banking
Volume	43
Issue number	8
DOIs	https://doi.org/10.1111/j.1538-4616.2011.00460.x
Publication status	Published - Dec 2011

ASJC Scopus subject areas

Finance
Accounting
Economics and Econometrics

Access to Document

10.1111/j.1538-4616.2011.00460.x

Cite this

@article{fe81f54efdae4532b8b42ae317ccfc58,

title = "Order Flow and the Monetary Model of Exchange Rates: Evidence from a Novel Data Set",

abstract = "We propose an exchange rate model that is a hybrid of the conventional specification with monetary fundamentals and the Evans–Lyons microstructure approach. We estimate a model augmented with order flow variables, using a unique data set: almost 100 monthly observations on interdealer order flow on dollar/euro and dollar/yen. The augmented macroeconomic, or “hybrid,” model exhibits greater in-sample stability and out of sample forecasting improvement vis-{\`a}-vis the basic macroeconomic and random walk specifications.",

author = "Chinn, {Menzie D.} and Moore, {Michael J.}",

year = "2011",

month = dec,

doi = "10.1111/j.1538-4616.2011.00460.x",

language = "English",

volume = "43",

pages = "1599--1624",

journal = "Journal of Money Credit and Banking",

issn = "1538-4616",

publisher = "Wiley-Blackwell",

number = "8",

}

TY - JOUR

T1 - Order Flow and the Monetary Model of Exchange Rates: Evidence from a Novel Data Set

AU - Chinn, Menzie D.

AU - Moore, Michael J.

PY - 2011/12

Y1 - 2011/12

N2 - We propose an exchange rate model that is a hybrid of the conventional specification with monetary fundamentals and the Evans–Lyons microstructure approach. We estimate a model augmented with order flow variables, using a unique data set: almost 100 monthly observations on interdealer order flow on dollar/euro and dollar/yen. The augmented macroeconomic, or “hybrid,” model exhibits greater in-sample stability and out of sample forecasting improvement vis-à-vis the basic macroeconomic and random walk specifications.

AB - We propose an exchange rate model that is a hybrid of the conventional specification with monetary fundamentals and the Evans–Lyons microstructure approach. We estimate a model augmented with order flow variables, using a unique data set: almost 100 monthly observations on interdealer order flow on dollar/euro and dollar/yen. The augmented macroeconomic, or “hybrid,” model exhibits greater in-sample stability and out of sample forecasting improvement vis-à-vis the basic macroeconomic and random walk specifications.

U2 - 10.1111/j.1538-4616.2011.00460.x

DO - 10.1111/j.1538-4616.2011.00460.x

M3 - Article

SN - 1538-4616

VL - 43

SP - 1599

EP - 1624

JO - Journal of Money Credit and Banking

JF - Journal of Money Credit and Banking

IS - 8

ER -

Order Flow and the Monetary Model of Exchange Rates: Evidence from a Novel Data Set

Abstract

ASJC Scopus subject areas

Access to Document

Fingerprint

Cite this