The high-frequency response of exchange rates to monetary policy actions and statements
This paper investigates the impact of US monetary policy on the level and volatility of exchange rates using an event study with intraday data for five currencies (the US dollar exchange rate versus the euro, the Canadian dollar, the British pound, the Swiss franc, and the Japanese yen). I construct two indicators of news about monetary policy stemming separately from policy decisions and from balance of risk statements. Estimation results show that both policy decisions and communication have economically large and highly significant effects on the exchange rates, with the surprise component of statements accounting for most of the explainable variation in exchange rate returns in response to monetary policy. This paper also shows that exchange rates tend to absorb FOMC monetary surprises within 30-40Â min from the announcement release.
Year of publication: |
2011
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Authors: | Rosa, Carlo |
Published in: |
Journal of Banking & Finance. - Elsevier, ISSN 0378-4266. - Vol. 35.2011, 2, p. 478-489
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Publisher: |
Elsevier |
Keywords: | C14 E52 E58 F31 High-frequency exchange rates US Federal Reserve Central bank communication Monetary policy shocks News shocks |
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