The aim of this paper is to establish the link between the high frequency dynamics of spot exchange rates and developments in the macroeconomy. To do so, I first present a theoretical model of exchange-rate determination that bridges the gap between existing microstructure and traditional...

This article summarizes exchange-rate research using microstructure models. It first lays out the key features of the foreign exchange market and describes how they are incorporated into a canonical model of currency trading. The empirical implications of the model are then examined. The article...

This paper provides new perspective on the poor performance of exchange rate models by focusing on the information structure of FX trading. I present a new theoretical model of FX trading that emphasizes the role of incomplete and heterogeneous information. The model shows how an equilibrium...

This paper addresses the striking ability of transaction flows to explain exchange rate movements. Specifically, we examine whether this arises because transaction flows convey incremental information about fundamentals. If so, then these flows should affect price upon their realization and...

We address the puzzle of what determines exchange rates by examining information aggregation in a dynamic general equilibrium (DGE) setting. Unlike other DGE macro models, which enrich either preference structures or production structures, our model enriches the information structure. The model...

This paper provides an overview of the recent literature on Foreign Exchange Market Microstructure. Its aim is not to survey the literature, but rather to provide an introductory tour to the main theoretical ideas and empirical results. The central theoretical idea is that trading is an integral...