This paper reviews recent progress in applying information-theoretic tools to long-standing exchange rate puzzles. I begin by distinguishing the traditional public information approach (e.g. monetary models, including new open economy models) from the newer dispersed information approach. (The...

It is a common view that private information in the foreign exchange market does not exist. We provide evidence against this view. The evidence comes from the introduction of trading in Tokyo over the lunch hour. Lunch-hour return variance doubles with the introduction of trading, which cannot...