TY  - JOUR
AU  - Chinn,Menzie D.
AU  - Moore,Michael J.
TI  - Private Information and a Macro Model of Exchange Rates: Evidence from a Novel Data Set
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14175
PY  - 2008
Y2  - July 2008
UR  - http://www.nber.org/papers/w14175
L1  - http://www.nber.org/papers/w14175.pdf
N1  - Author contact info:
Menzie D. Chinn
Dept. of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI 53706
Tel: 608/262-7397
Fax: 608/262-2033
E-Mail: mchinn@lafollette.wisc.edu

Michael Moore
Queens University, Belfast
E-Mail: m.moore@qub.ac.uk
AB  - We propose an exchange rate model which is a hybrid of the conventional specification with monetary fundamentals and the Evans-Lyons microstructure approach.   It argues that the failure of the monetary model is principally due to private preference shocks which render the demand for money unstable. These shocks to liquidity preference are revealed through order flow.  We estimate a model augmented with order flow variables, using a unique data set: almost 100 monthly observations on inter-dealer order flow on dollar/euro and dollar/yen.  The augmented macroeconomic, or "hybrid", model exhibits out of sample forecasting improvement over the basic macroeconomic and random walk specifications.
ER  -