Explaining Exchange Rate Dynamics at Short Horizons: The Role of Financial Markets

2004 ◽  
Author(s):  
Lorenzo Cappiello ◽  
Roberto A. De Santis
Keyword(s):  
Exchange Rate ◽  
Financial Markets ◽  
Exchange Rate Dynamics

EXCHANGE RATE MISALIGNMENT AND ECONOMIC GROWTH: EVIDENCE FROM PAKISTAN'S RECENT FLOAT

2010 ◽  
Vol 55 (03) ◽  
pp. 471-489 ◽  
Author(s):  
MUHAMMAD ZAKARIA
Keyword(s):  
Exchange Rate ◽  
Financial Markets ◽  
Real Exchange Rate ◽  
Flexible Exchange Rate ◽  
Output Growth ◽  
Growth Equation ◽  
Rate Period ◽  
Exchange Rate Misalignment ◽  
Worker Democracy

The paper empirically evaluates growth effects of real exchange rate misalignments in Pakistan for the flexible exchange rate period (1983Q1 to 2005Q4). First, real exchange rate misalignment is calculated as the deviation of the actual real exchange rate from its equilibrium value. It is found that the actual real exchange rate in Pakistan remained undervalued. Second, using the GMM estimation technique, it is found that undervaluation of the Pak-rupee has improved output growth in Pakistan and this result is robust to alternative growth equation specifications. The results also stress the role of other factors in determining output growth rate; particularly, capital per worker, democracy, corruption, human capital and deeper financial markets have the theoretical predicted signs and are statistically significant.

Information content of order flows in the FX market: importance of nonfundamental factors

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yacine Hammami ◽  
Sabrine Kharrat
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Information Content ◽  
Explanatory Power ◽  
Empirical Work ◽  
Order Flow ◽  
Content Type ◽  
Exchange Rate Dynamics ◽  
Fx Market

PurposeThe purpose of the paper is to show that order flows determine exchange rate dynamics because they carry information about nonfundamental factors besides macroeconomic fundamentals.Design/methodology/approachTo understand the role of nonfundamental factors in driving order flows, this study uses two approaches. Initially, Evans and Rime (2016) VAR framework is followed to study the incremental information transmitted by order flow compared to macroeconomic variables. Then, the study uses the settings in which Rime et al. (2010) conduct their empirical work, which gives the researcher more latitude in specifying the identity of the factors that drive order flows.FindingsThe findings evidence that order flows explain the dynamics of the TND/USD exchange rate. The results highlight that order flows convey information about technical strategies, the currency systematic factors and political risk. This study also documents the presence of a Ramadan effect in exchange rates and order flows.Originality/valueThis study makes four contributions to the literature. First, it complements the literature on the FX microstructure of emerging markets. The study investigates the information content carried by order flows, while the previous literature has focused solely on examining the explanatory power of order flows to explain exchange rates in emerging countries. The second contribution is that the study demonstrates formally that order flows determine exchange rates because they transmit information about nonfundamental factors. Third, this study is the first to examine whether order flows convey information about technical analysis. Four, the study relates order flow to nontraditional factors that are relevant to the Tunisian FX market.

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