Richard K. Lyons




Working Papers


Published Articles






The Microstructure Approach to Exchange Rates

Richard K. Lyons
MIT Press, published December 2001 (333 pages)
Financial support from the National Science Foundation is gratefully acknowledged

Haas School, U.C. Berkeley,
Berkeley, CA 94720-1900
Tel: 510-642-1059, Fax: 510-643-1420

Click here to download Chapter 1 in PDF format.

Click here for more information on the book from MIT Press

Click here for the location of a few printer's errors that crept into the first printing.

For teaching purposes, please contact Jane Macdonald at MIT Press for a desk copy (janem@MIT.EDU).


Chapter 1: Overview of the Microstructure Approach
    1.1 Three Approaches to FX
    1.2 Hallmarks of the Microstructure Approach
    1.3 Overarching Themes
    1.4 Applying Microstructure Tools to Exchange-Rate Puzzles
    1.5 Spanning the Micro-Macro Divide

Chapter 2: The Economics of Order-Flow Information
    2.1 Background
    2.2 Empirical Evidence that Order Flow is Informative
    2.3 Defining Private Information
    2.4 Extending the Taxonomy of Information Types

Chapter 3: The Institutional Setting
    3.1 Features of Spot FX Trading
    3.2 Descriptive Statistics: The BIS Surveys
    3.3 Transparency of Order Flow
    3.4 Moving Beyond Institutions

Chapter 4: Theoretical Frameworks
    4.1 An Implicit Auctioneer: Rational Expectations Models
    4.2 An Explicit Auctioneer: Kyle Models
    4.3 Single Dealer: Sequential Trade Models
    4.4 Multiple Dealer: Simultaneous Trade Models
    4.5 Appendix: A Tool Kit

Chapter 5: Empirical Frameworks
    5.1 Data Sets
    5.2 Structural Models and Time-Series Models
    5.3 Findings: Informative Order Flow and Imperfect Risk Sharing
    5.4 Why is Volume so High in FX?

Chapter 6: Exchange Rate Models: Macro to Microfoundations
    6.1 FX Fundamentals
    6.2 Macro Models
    6.3 Microfoundations: Tastes and Technology
    6.4 Microfoundations: Information and Institutions
    6.5 A False Dichotomy: Micro Issues Versus Macro Issues

Chapter 7: Macro Issues: The Challenge for Microstructure
    7.1 The Determination Puzzle
    7.2 The Flow Approach
    7.3 The Excess Volatility Puzzle
    7.4 The Forward Bias Puzzle

Chapter 8: Microstructure and Central Bank Intervention
    8.1 Macro Motivation for a Micro Approach
    8.2 Microstructure Modeling of Intervention
    8.3 The Price Impact of Secret Intervention

Chapter 9: Customers: Underlying Demand in the Economy
    9.1 Background on Customers
    9.2 A First Look at Customer Order Flow
    9.3 Institution Types, Price Impact, and Information Structure
    9.4 Case Study: The Collapse of the Yen/$ rate, October 1998

Chapter 10: Looking Forward
    10.1 What We Have Learned
    10.2 Directions for Research
    10.3 Policy Implications
    10.4 Where FX is Going: Implications for this Book


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Professor Richard K. Lyons
Haas School of Business
U.C. Berkeley
Berkeley, CA 94720-1900
Tel: 510-642-1059, Fax: 510-642-4700


Former Dean Richard Lyons

Professor Richard K. Lyons
Haas School of Business
U.C. Berkeley
Berkeley, CA 94720-1900
Tel: 510-642-1059
Fax: 510-642-4700


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