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

37 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

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Cite this

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DO - 10.1111/j.1538-4616.2011.00460.x

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

Abstract

ASJC Scopus subject areas

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