Recent empirical studies suggest that nominal interest rates and expected inflation do not move together one for one in the long run, a finding at odds with many theoretical models. This paper shows that these results can be deceptive when the process followed by inflation shifts infrequently....

This paper addresses whether macro news arrivals affect currency markets over time. The null from macro exchange-rate theory is that they do not: macro news is impounded in ex-change rates instantaneously. We test this by examining the effects of news on subsequent trades by end-user...

In a market with symmetric information about fundamentals, can information-based trade still arise? Consider bond and FX markets, where private information about nominal cash flows is generally absent, but participants are convinced that superior information exists. We analyze a class of...

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 tests whether macroeconomic news is transmitted to exchange rates via the transactions process and if so, what share occurs via transactions versus the traditional direct channel. We identify the link between order flow and macro news using a heteroskedasticity-based approach, a la...

I use Forex trading data to study how risks associated with the lack of liquidity contribute to the dynamics of 17 spot exchange rates through their time-varying contributions to risk premia. I find that liquidity risk matters. All the foreign exchange risk premia compensate investors for...

This paper examines the market-wide effects of front-running and information-sharing by dealers in a quantitative microstructure model of Forex trading. Recent investigations by government regulators and court proceedings reveal that there has been widespread sharing of information among Forex...

Since 2013 regulators have been investigating the activities of some of the world's largest banks around the setting of daily benchmarks for forex prices. These benchmarks are a key linchpin of world financial markets, providing standardize prices used to value global equity and bond portfolios,...

This paper examines the persistent deterioration in the international external position of the U.S. over the past 60 years. I develop a model without Ponzi schemes and arbitrage opportunities that accounts for both the secular rise and the cyclical variations in the U.S. international debt...

This paper examines why order flows are empirically important drivers of spot exchange rate dynamics. We consider a decomposition for the depreciation rate that must hold in any model and show that order flows will appear as important proximate drivers when they convey significant incremental...