This paper analyses one of the main pillars of Brazil.s newly found economic resilience: a maturing FX market providing support to its managed .oating exchange rate regime. I develop a microstrucure model suitable to describe the Brazilian FX market, an emerging economy frequently subjected to...

We build a two-country model with imperfect financial intermediation. Banks face limits to arbitrage which lead to positive excess returns in the investment markets and a risk premium in the international credit market. Gross capital flows affect the exchange rate since banks are balance sheet...

This paper contributes to the microstructure approach to exchange rates in two ways. Using a unique dataset that covers 100% of the Brazilian FX financial market, we find a strict link between FX currency flows and the Balance of Payments. Second, we develop an identification strategy that...

Foreign currency denominated debt as an influence of exchange rate pressure during the 2008 global crisis is explored across 58 countries. Countries with higher ratios of foreign currency denominated debt to total international debt experienced significant currency depreciation during the global...

We presents evidence that non-financial customers are the main liquidity providers in the overnight foreign exchange market using a unique daily data set covering almost all transactions in the SEK/EUR market over almost ten years. Two main findings support this: (i) The net position of...

This paper provides real-time evidence on the frequency, size and duration of arbitrage opportunities and deviations from the law of one price (LOP) in the foreign exchange market. We investigate deviations from the covered interest rate parity (CIP) condition ('round-trip arbitrage') and...

What is the role of "large players" like hedge funds and other highly leveraged institutions in speculative attacks? In recent theoretical work, large players may induce an attack by an early move, providing information to smaller agents. In contrast, many observers argue that large players are...

This paper investigates the validity of the law of one price (LOP) in international financial markets by examining the frequency, size and duration of inter-market price differentials for borrowing and lending services (`one-way arbitrage'). Using a unique data set for three major capital and...

This paper is about contagion and interdependence among Central European economies. It investigates the extent to which country-specific shocks spread across these countries beyond the normal channels of interdependence, taking into account common external shocks. To model such shocks, we make...

We document stylized facts about China's recent exchange rate policy for its currency, the renminbi (RMB). Our empirical findings suggest that a "two-pillar policy" is in place, aiming to balance RMB index stability and exchange rate flexibility. We then develop a tractable no-arbitrage model of...