Money: A Market Microstructure Approach

Money: A Market Microstructure Approach

The current discussion about the future of the financial system draws heavily on a set of theories known as the ‘New Monetary Economics’. The New Monetary Economics predicts that deregulation and financial innovation will lead to a moneyless world. This paper uses a market microstructure approach to show that a common medium of exchange that serves as unit of account will remain a necessary ins...

Optimal exchange-rates: a market-microstructure approach

We analyze exchange-rate management by the central bank when it makes the FX market for the sake of social-welfare objectives. It is assumed that markets are incomplete, so that agents are exposed to exchange-rate volatility against which they cannot fully hedge. It follows that the central bank may provide insurance by smoothing the exchange rate. However, smoothing the exchange rate also crea...

Normative Approach to Market Microstructure Analysis

Market microstructure: A survey

Market microstructure studies the process by which investors' latent demands are ultimately translated into prices and volumes. This paper reviews the theoretical, empirical and experimental literature on market microstructure relating to: (1) price formation, including the dynamic process by which prices come to impound information, (2) market structure and design, including the relation betwe...

Market Microstructure

• Amihud, Mendelson and Murgia (1990) studied the impact of the stock market microstructure on return volatility and on the value discovery process in the Milan Stock Exchange; the primary trading mechanism employed by this exchange is a call market, which is usually preceded and followed by trading in a continuous market. They found that the opening transaction in the continuous market had the...