 Order flow in the South: Anatomy of the Brazilian FX marketThomas Wu The North American Journal of Economics and Finance, 2012, vol. 23, issue 3, 310-324 Abstract: This paper analyses one of the main pillars of Brazil's newly found economic resilience: a maturing FX market providing support to its managed floating exchange rate regime. I develop a microstructure model suitable to describe the Brazilian FX market, an emerging economy frequently subjected to sudden stops in capital flows. The model introduces two major changes relative to previous microstructure models. First, dealers may decide to hold overnight positions in the FX market if they find it profitable to do so. Second, customers’ demand for foreign exchange is a function of macroeconomic fundamentals, including contemporaneous feedback from exchange rate movements. The main predictions of the model are supported by a unique data set, covering all transactions between dealers and customers from the official Brazilian FX market from July 1, 1999 to June 30, 2003 (a time period in which Brazil suffered two severe external liquidity shocks). Keywords: Microstructure; Exchange rates; Dealers; Liquidity; Central bank intervention (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:23:y:2012:i:3:p:310-324 DOI: 10.1016/j.najef.2012.03.004 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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