Order Flow-Based Microstructure Analysis of the Spot Exchange Rate in Zambia

dc.contributor.authorPhiri, Sydney Chauwa
dc.contributor.authorChisha, Keegan
dc.contributor.authorChipili, Jonathan M.
dc.date.accessioned2024-05-13T06:39:10Z
dc.date.available2024-05-13T06:39:10Z
dc.date.issued2024-05-13
dc.description.abstractTraditional macroeconomic fundamentals have challenges in explaining nominal exchange rate movements at short horizons partly due to their inability to capture expectations. Using data from the Bank of Zambia, and an order flow-based microstructure model within a vector autoregressive (VAR) framework, this study establishes that order flows in the foreign exchange market in Zambia contain useful information in explaining daily exchange rate movements for the period 2016‒2020. Daily order flows of four out of 18 different customer types are found to contain information content with the interbank, manufacturing, households, as well as wholesale and retail being the most important. Cross-market order flows contain less information to explain daily movements in the kwacha/US dollar exchange rate. The policy lesson from the empirical results points to the central bank paying attention to the demand requirements by the four identified segments of the foreign exchange market that can potentially drive up the exchange rate and generate inflationary pressures.
dc.identifier.isbn978-9966-61-247-2
dc.identifier.urihttps://publication.aercafricalibrary.org/handle/123456789/3817
dc.language.isoen
dc.publisherAfrican Economic Research Consortium
dc.relation.ispartofseriesResearch Paper 543
dc.titleOrder Flow-Based Microstructure Analysis of the Spot Exchange Rate in Zambia
dc.typeArticle
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