This is a new approach to exchange rate economics whose foundations lie in microeconomics. The focus of the approach is on dispersed information and how this type of information is aggregated via market processes. By dispersed information we mean bits of information about changing variables such as output, money demand, goods prices, consumption preferences, and risk preferences, all of which are relevant to exchange rate determination in extant models. Macroeconomic models do not allow for information of this type; rather, relevant information is either symmetric economy-wide, or, in some models, asymmetrically assigned to a single agent—the central bank. That the private sector might be solving a problem of dispersed information is not considered. In reality, there are countless bits of information that the exchange rate (as an asset price) needs to impound. Understanding the nature of this information problem and how it is solved is the essence of New Micro Exchange Rate Economics.
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