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Exchange Rates and Order Flow in the Long Run

M. Martin Boyer () and Simon van Norden ()

CIRANO Working Papers from CIRANO

Abstract: Several recent papers have underlined the importance of the microstructure effects in understanding exchange rate behavior by documenting stable long-run relationships between cumulated order flows and spot exchange rates. This stands in contrast to the widely-studied failure of exchange rates to conform to the long-run behavior implied by conventional macroeconomic models and is consistent with the prediction of micro-structure models. We reexamine the evidence for stable long-run relationships. We find that such evidence exists only for a small number of the major currencies we examine and that is it statistically fragile. We conclude that this implication of microstructure models does not fit the data as well as previous studies suggest. Plusieurs études récentes ont souligné l'importance de la microstructure des marchés pour la compréhension des comportements des taux de change en documentant les relations stables à long terme entre les flux des commandes cumulées et les taux de change courants. Les résultats contrastent avec ceux de nombreuses études sur l'échec des taux de change de se conformer au comportement à long terme que supposent les modèles macroéconomiques « conventionnels » et sont conformes à la prédiction des modèles microstructurels. Nous réexaminons l'évidence de relations stables à long terme et constatons que celle-ci n'existe que dans un petit nombre des taux de change étudiés et qu'elle est fragile du point de vue statistique. Nous concluons que l'implication des modèles microstructurels ne correspond pas aux données aussi bien que des études précédentes laissent supposer.

Keywords: cointegration; foreign exchange rates; order flow; microstructure; cointégration; flux de commandes; microstructure; taux de change (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Date: 2006-05-01
New Economics Papers: this item is included in nep-bec, nep-cba, nep-fin, nep-fmk and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11) Track citations by RSS feed

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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2006s-07

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