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FX Trading and Exchange Rate Dynamics
[chapter]
2017
Studies in Foreign Exchange Economics
I examine the sources of exchange rate dynamics by focusing on the information structure of FX trading. This structure permits the existence of an equilibrium distribution of transaction prices at a point in time. I develop and estimate a model of the price distribution using data from the Deutsche mark0dollar market that produces two striking results:~1! Much of the short-term volatility in exchange rates comes from sampling the heterogeneous trading decisions of dealers in a distribution
doi:10.1142/9789813148543_0005
fatcat:ecja42i2hvcevowb4gdfuvr6om