We analyse how capital controls affect FX microstructure, using as a case study the introduction and subsequent removal of controls in Iceland. We use a VAR of private order flow, Central Bank order flow and EURISK that allows for contemporaneous feedback effects to analyse the impact and...

We discuss how to solve infinite-horizon optimal control problems with recursive preferences à la Hansen and Sargent (1995) when both backward and forward-looking variables enter into the law of motion regulating the system dynamics. With our analysis we establish: 1) under which conditions the...

Recent research has highlighted the role that the government budget constraint plays in determining the consumer price level. According to the fiscal approach to price determination, prices adjust so that the discounted value of future real government primary surpluses equals the current real...

We propose a simple structural model of exchange rate determination which is inspired by the analytical framework recently forward by Bacchetta and van Wincoop (2006) and allows us to disentangle the portfolio-balance and information effects of order flow on exchange rates. We estimate this...

Using a market microstructure analytical framework we decompose the FX forward discount bias into elements due to time-varying risk premia (related to EBS order flow) and forecast errors derived using the Reuters survey of FX market participants. We find that both elements are significant...

We formulate a market microstructure model of exchange determination we employ to investigate the impact of foreign exchange intervention on exchange rates and on foreign exchange (FX) market conditions. With our formulation we show i) how foreign exchange intervention in°uences exchange rates...