| Publisher | University of California, Berkeley | ||
|---|---|---|---|
| Format | 163.3KB PDF, requires Acrobat Rdr 5 | Date added | 01 Aug 1999 |
| Topics | Economic Modeling | ||
| Downloads | 9 | ||
Macroeconomic models of nominal exchange rates perform poorly. In sample, R 2 statistics as high as 10 percent are rare. Out of sample, these models are typically out-forecast by a naïve random walk. This paper presents a model of a new kind. Instead of relying exclusively on macroeconomic determinants, the model includes a determinant from the field of microstructure order flow. Order flow is the proximate determinant of price in all microstructure models. This is a radically different approach to exchange rate determination.
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