The High-Frequency Response of Exchange Rates and Interest Rates to Macroeconomic Announcements

By Jon Faust, J. Rogers, Shing-Yi Wang, Jonathan H. Wright. 2003

450 citations recorded by the source corpus.

Many recent papers have studied movements in stock, bond, and currency prices over short windows of time around macro announcements. This paper adds to the announcement effects literature in two ways. First, we study the joint announcement effects across a broad range of assets--exchange rates and U.S. and foreign term structures. In order to evaluate whether the joint effects can be reconciled with conventional theory, we interpret the joint movements in light of uncovered interest rate parity or changes in risk premia. For several real macro announcements, we find that a stronger than expected release appreciates the dollar today, but that it must either (i) lower the relative risk premium for holding foreign currency rather than dollars, or (ii) imply considerable future expected dollar depreciation. The latter implies an overshooting behavior akin to that described by Dornbusch (1976). Second, we use a longer span of high frequency data than has been common in announcement work. A longer span of high frequency data contributes to the precision of our estimates and allows us to explore the possibility that the effects of macro surprises on asset prices have varied over time. We find evidence, for example, that PPI releases had a larger effect on U.S. interest rates before about 1992 than subsequently.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/cc0ab80095fe556ff6ac5f684b7de3317363fdca

Citations in the corpus

Did Unexpectedly Strong Economic Growth Cause the Oil Price Shock of 2003–2008? (2013, unknown): “Such distributed lag models are standard in the literature on news regressions (see, for example, Balduzzi et al., 2001; Gürkaynak et al. 2005; Faust et al. 2007; Chatrath et al., 2011; Kilian and Vega, 2011).10 Following this literature, the baseline regression estimates are based only on dates t…”
Equal Size, Equal Role? Interest Rate Interdependence between the Euro Area and the United States (2004, unknown): “Finally, exchange rates have also been shown to respond strongly to news about economic fundamentals and monetary policy (Andersen et al., 2003; Faust et al., 2003).”
Evaluating Asset-Market Effects of Unconventional Monetary Policy: A Cross-Country Comparison (2014, unknown): “The use of intradaily data is potentially helpful to zero in on the window where monetary policy is the only information coming out (Faust et al., 2007; Gürkaynak and Wright, 2013).”
Do Energy Prices Respond to U.S. Macroeconomic News? A Test of the Hypothesis of Predetermined Energy Prices (2008, unknown): “Our approach is based on a methodology pioneered by Andersen et al. (2003, 2007) in the related context of studying price discovery in asset markets (also see Faust et al., 2007).”
Real-Time Price Discovery in Global Stock, Bond and Foreign Exchange Markets (2006, unknown): “1 Notably, for example, in contemporaneous and independent work, Faust, Rogers, Wang, and Wright (2007) use the”
Explaining Monetary Policy in Press Conferences (2018, unknown): “A similar model framework is provided in Faust et al. (2007).”
The impact of macroeconomic news on Bitcoin returns (2020, unknown): “The inﬂuence of U.S. macroeconomic announcements has also been established for the U.S. futures markets (Evans [2011]), options markets (Verousis et al. [2016]), Treasury bond yields (Altavilla et al. [2017]), foreign exchange markets (Faust et al. [2007];)”