Order Flow and Exchange Rate Dynamics : An Application to Emerging Markets

The examines short-run exchange rate dynamics in an emerging market based on the recent microstructure framework of foreign exchange markets where the main explanatory variable is the order flow. The study makes two main contributions to the literature. First, it modifies the model to take account of a unique feature of the majority of emerging markets, namely the existence of a black market for FOREX. Secondly, it uses a unique proprietary database covering almost the complete Ghanaian market, and for a long time span compared to previous studies, which use data for a single market-maker and for a short period of time. The study confirms