This paper examines why order flows are empirically important drivers of spot exchange rate dynamics. We consider a decomposition for the depreciation rate that must hold in any model and show that order flows will appear as important proximate drivers when they convey significant incremental information about future interest rate di↵erentials, risk premiums and/or long-run exchange rate levels (i.e., information that cannot be inferred from publicly observed variables). We estimate the importance of these incremental information flows for the EURNOK spot exchange rate using eight years of highquality, disaggregated, end-user order flow data collected by the Norges Bank.

Evans, M. D. D., & Rime, D. (2016). Order flow information and spot rate dynamics. Journal of International Money and Finance, 69(December), 45-68

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