FLOWS OF THE PACIFIC: ASIAN FOREIGN EXCHANGE MARKETS THROUGH TRANQUILITY AND TURBULENCE

Authors

  • DAGFINN RIME,

    Corresponding author
    1. Norges Bank and Norwegian University of Science and Technology
      Dagfinn Rime, Norges Bank and Norwegian University of Science and Technology (NTNU). Bankplassen 2, PO box 1179 Sentrum N-0107, Oslo, Norway. E-mail: dagfinn.rime@norges-bank.no. We are grateful for comments from the Editor, an anonymous referee, and from Tom Bernhardsen, Alexander Flatner, Egil Matsen, Kathrine Lund Neraal and John Marius Ørke, as well as from seminar participants at the Norges Bank and at the Norwegian University of Science and Technology. The views expressed here do not necessarily reflect those of Norges Bank.
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  • HANS JØRGEN TRANVÅG

    1. Norwegian University of Science and Technology
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Dagfinn Rime, Norges Bank and Norwegian University of Science and Technology (NTNU). Bankplassen 2, PO box 1179 Sentrum N-0107, Oslo, Norway. E-mail: dagfinn.rime@norges-bank.no. We are grateful for comments from the Editor, an anonymous referee, and from Tom Bernhardsen, Alexander Flatner, Egil Matsen, Kathrine Lund Neraal and John Marius Ørke, as well as from seminar participants at the Norges Bank and at the Norwegian University of Science and Technology. The views expressed here do not necessarily reflect those of Norges Bank.

Abstract

Using the longest data set on foreign exchange (FX) order flow to date, along with the broadest coverage of currencies to date, we examine the effect of FX order flow on exchange rates across small and large currencies, currencies with floating or fixed regimes, and across both tranquil and turbulent periods. Over our 15 years of data for 11 Asian and Australasian currencies, we find that order flow has a potentially strong impact on all exchange rates in the sample. The effect is strongest on floating exchange rates, both economically and statistically, but is sizeable also on the other exchange rates, especially during periods of turbulence. By creating a measure of regional order flow, we show that all exchange rates depreciate as flows are moved out of Asia/Australasia and into US dollars. This is true both across regimes and if their own flow is not included in the structure of the regional flow.

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