Essential hybridity: A money view of FX

摘要

Economics and finance typically analyze the exchange rate as the relative price of goods and assets, respectively. By contrast, this paper explores a "money view" which understands the exchange rate as the relative price of money, a price that is determined in dealer markets by the order flow facing profit-seeking dealers. The economics of the FX dealer are analyzed using an extension of Treynor's model of security dealers; central banks are analyzed as FX dealers of last resort. Journal of Comparative Economics 41 (2) (2013) 355-363. Barnard College, Columbia University, 3009 Broadway, New York, NY 10027, United States.