Working Papers, Santa Cruz Center for International Economics 06-13
This paper contributes to the microstructure approach to exchange rates in two ways. Using a unique dataset that covers 100% of the Brazilian FX financial market, we find a strict link between FX currency flows and the Balance of Payments. Second, we develop an identification strategy that allows us to properly estimate the behavior of each of the main players in the FX market: dealers and the premium they charge in order to provide overnight liquidity; customers and the stabilizing nature of their feedback trading; and y the central bank and the liquidity provision and leaning-against-the-wind behavior in its intervention function.
microstructure exchange rates dealers liquidity central bank intervention