Exchange Rate Dynamics

 

Contents:

 

 

PART I: Macro Models

 

  1. Macro Models  without Frictions

a.    Preliminaries

                                              i.     Definitions

                                             ii.     Price Indices

                                           iii.     Purchasing Power Parity

b.    Empirical Characteristics of Real Exchange Rates

                                              i.     Real Exchange Rates and Relative Prices

                                             ii.     Volatility and Autocorrelation

                                           iii.     Unit Roots and Half-Lives

                                            iv.     Aggregations Bias and the PPP Puzzle

c.    Macro Exchange Rate Models.

                                              i.     Overview

                                             ii.     Equilibrium

                                           iii.     Exchange Rates in an Endowment Economy

                                            iv.     Exchange Rates in a Production Economy

d.    Summary.

e.    Bibliography

f.     Review Questions.

g.    Appendix:

                                              i.     Dynamic Programming

                                             ii.     Approximations

                                           iii.     Labor Income

                                            iv.     Derivations

 

 

  1. Macro Models with Frictions 

a.    The Model

                                                   i.     Structure

                                                 ii.     Equilibrium

b.    Sticky Prices

                                                   i.     Preset Price-Setting

                                                 ii.     Staggered Price-Setting

c.    International Risk-Sharing

d.    Incomplete Markets

                                                   i.     International Solvency

                                                 ii.     Portfolio Choice

                                                iii.     Portfolio Balance with Flexible Prices

                                                iv.     Portfolio Balance with Sticky Prices

e.    Summary

f.     Bibliography

g.    Review Questions

h.    Appendix

                                                   i.     Dynamic Portfolio Choice

                                                 ii.     Derivations

 

  1. Empirical Macro Models

a.    Present Value Models

                                                   i.     Present Value Equations

                                                 ii.     Drivers of Depreciation Rates

                                                iii.     Cointegration

                                                iv.     Volatility

                                                  v.     Joint Dynamics

                                                vi.     Forecasting

b.    Monetary Models

                                                   i.     Money-Income Models

                                                 ii.     Taylor-Rule Models

c.    External Balance Models

d.    Predicting Exchange-Rate Movements

                                                   i.     Meese and Rogoff

                                                 ii.     Prediction with Panels

                                                iii.     Interpretation and Assessment

e.    Summary

f.     Bibliography

g.    Review Questions

h.    Appendix

                                                   i.     Econometric Inference in Exchange Rate Models

                                                 ii.     Derivations

 

 

PART II: Microstructure Models

 

  1. Rational Expectations Models

a.    The Set Up:

b.    Homogeneity and Common Information

                                              i.     Asset Demands with Normal Distributed Returns

                                             ii.     The Tâtonnement Process

                                           iii.     Market Clearing

                                            iv.     Approximating the Rational Expectations Solution

c.    Heterogeneity

                                              i.     Informational Efficiency and The Grossman Paradox

                                             ii.     Higher Order Expectations

                                           iii.     Heterogeneous Information and Rational Confusion

                                            iv.     Heterogeneous Information and Persistence

                                             v.     Dynamic Implications

d.    Problems

                                              i.     Existence and Uniqueness

                                             ii.     Establishing an Equilibrium

e.    Summary

f.     Bibliography

g.    Review Questions

h.    Appendix

                                              i.     Derivations

                                             ii.     The Projection Theorem

                                           iii.     Impulse Responses

 

  1. Sequential Trade Models 

a.    The Set Up

b.    Exchange Rate Determination

                                              i.     Quotes and Beliefs

                                             ii.     Learning from Trade

c.    Exchange Rate Dynamics

                                              i.     Learning about Fundamentals

                                             ii.     Market Efficiency and Volatility

d.    Information Flows

                                              i.     Interpreting the Quote Spread

                                             ii.     Order Flow

e.    Public verses Private Information

f.     The Role of Uniformed Traders

g.    Summary                                          

h.    Bibliography

i.      Review Questions

 

  1. New Micro Models: An Introduction

a.    The Structure of the Foreign Exchange Market

                                              i.     The Interbank Market

                                             ii.     The Retail Market  

                                           iii.     Market Participants

                                            iv.     Implications for Model Building

 

b.    The Portfolio Shifts Model

                                              i.     Overview

                                             ii.     Set Up

                                           iii.     Market Participants

                                            iv.     Equilibrium

                                             v.     Solving for the Equilibrium

                                            vi.     Features of the Equilibrium

 

c.    Extending the Portfolio Shifts Model

                                              i.     Multiple Currencies

                                             ii.     Lower Transparency

 

d.    Summary                                           

e.    Bibliography

f.     Review Questions

g.    Appendix

 

 

  1. New Micro Models: Empirical Evidence

a.    Daily Analysis

                                              i.     Single Currency Results

                                             ii.     Multiple Currencies

                                           iii.     Dealer Order Flow and Customer Order Flow

b.    Intraday Analysis

                                              i.     Vector Autoregressions

                                             ii.     VAR Models of Intraday Trading

1.    Market Time Models

2.    Clock Time Models

                                           iii.     Decentralized Trading Models

3.    The VAR Identification Problem

4.    The Evans Intraday Trading Model

c.    Forecasting Order Flow and Feedback Trading

d.    Summary     

e.    Bibliography

f.     Review Questions

g.    Appendix

                                              i.     GMM Estimation of Clock Time Models

                                             ii.     Monte Carlo Methods

 

  1. Identifying Order Flow 

a.    Order Flow in a Rational Expectations Model

b.    Order Flow in a Limit Order Book

c.    Estimating Order Flow

                                              i.     Estimating Order Flow from Portfolio Holdings

                                             ii.     Estimating Order Flow from Transaction Prices

d.    Summary

e.    Bibliography

f.     Review Questions

g.    Appendix    

 

 

PART III: Micro-Based Macro Models

 

  1. Order Flows and the Macroeconomy 

a.    A Micro-Based Macro Model

                                                   i.     Structure

                                                 ii.     Equilibrium

                                                iii.     Empirical Implications

b.    Order Flow and Macro Information

                                                   i.     Exchange Rate Returns and Order Flows

                                                 ii.     Macro Variables and Order Flows

c.    Re-Examining the Disconnect Puzzle

                                                   i.     Measuring Macro Variables

                                                 ii.     Current Macro Conditions

                                                iii.     Future Macro Conditions

                                                iv.     Combining the Micro and Macro Evidence

d.    Summary

e.    Bibliography

f.     Review Questions

g.    Appendix

                                                   i.     The Kalman Filter

                                                 ii.     Real-Time Estimation

                                                iii.     Derivations

 

  1. Exchange Rates, Order Flows and Macro Data Releases

a.    The Macro Perspective

                                                   i.     The Event-Study Rationale

                                                 ii.     Event-Study Regressions

                                                iii.     Event-Study Results

b.    Micro Perspective I: High Frequency Dynamics

                                                   i.     Data Releases in the Portfolio Shifts Model

                                                 ii.     Empirical Evidence

c.    Micro Perspective II: Low Frequency Dynamics

                                                   i.     Daily Effects

                                                 ii.     Longer-Term Effects

d.    Summary

e.    Bibliography

f.     Review Questions

g.    Appendix

                                                   i.     Estimation of the Evans and Lyons Daily Model

 

11. Exchange Rate Risk

a.    FX Returns and Interest Rates

                                                   i.     Interest Parity

                                                 ii.     The Carry Trade

b.    11.2 Macro Models

                                                   i.     Stochastic Discount Factors

                                                 ii.     Reverse Engineering the Forward Premium Puzzle

                                                iii.     Euler Equation Models

                                                iv.     Peso Problem Models

c.    Micro-Based Models

                                                   i.     A Micro-Based Model of the Risk Premium

                                                 ii.     Micro-Based Explanations for the Forward Premium Puzzle

                                                iii.     Excess Returns, Risk Premia and Order Flows

d.    Summary

e.    Bibliography

f.     Review Questions

g.    Appendix

                                                   i.     Solving the Micro-Based Model

                                                 ii.     Derivations