The behaviour of the foreign exchange market

Quarterly Bulletin 1995 Q2
Published on 01 June 1995

By Professor Alan Kirman.

In this article, Alan Kirman considers what developments in economic theory have to contribute to an understanding of the recent evolution of the foreign exchange market. After outlining the standard, efficient-markets model of the workings of the market, he looks at various reasons why that model has been questioned and examines the extent to which alternative models can offer a better explanation of the market’s actual behaviour.

Professor Kirman was a Houblon-Norman fellow at the Bank in August of last year. The views expressed in this article are his, rather than those of the Bank.

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