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 journalArticle

31 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 languageEnglish
Pages (from-to)1599-1624
Number of pages26
JournalJournal of Money Credit and Banking
Volume43
Issue number8
DOIs
Publication statusPublished - Dec 2011

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

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