Essays in Honour of Charles Goodhart, Volume Two
Edited by Paul Mizen
Discussion of ‘Customer trades and extreme events in foreign exchange’ and ‘Trading activity, volatility and transactions costs in spot FX markets’ Mark P. Taylor Exchange rate economics is one of the most challenging areas of our discipline, and it is one in which Charles Goodhart has made important contributions. For example, in his work on the interaction of chartists and fundamentalists, as set out in his inaugural lecture at the London School of Economics (Goodhart, 1988), he was one of the ﬁrst economists to recognise explicitly that, although economic fundamentals may be important for the determination of long-run equilibrium in foreign exchange markets, short-run exchange movements may be dominated by the inﬂuence of other factors besides the list of standard macro-fundamentals.1 Thus, Goodhart was one of the earliest economists to realise the importance of analysing the foreign exchange market from a perspective other than that employed by the traditional macroeconomic approach, and his subsequent work on microstructure built on this insight. Indeed, as Flood and Taylor (1996, p. 285) observe, it is because of the apparent importance of factors not on the standard macro list in determining exchange rate behaviour ‘that new work on the microstructure of the foreign exchange market seems both warranted and promising’. From the other side of the Atlantic, Richard Lyons has been the leading pioneer in work on foreign exchange market microstructure, and it is therefore entirely appropriate that his intriguing paper with Mintao Fan should be presented at this conference in honour of...
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