Exchange Rates and Fundamentals: New Evidence from Real-Time Data

By Michael Ehrmann, Marcel Fratzscher. Social Science Research Network, 2005

192 citations recorded by the source corpus.

This paper analyses the link between economic fundamentals and exchange rates by investigating the importance of real-time data. We find that such economic news in the United States, Germany and the euro area have indeed been a driving force behind daily US dollar – euro/DEM exchange rate developments in the period 1993-2003. The larger importance of US macroeconomic news is at least partly explained by their earlier release time compared to corresponding German and euro area news. The exchange rate is also shown to respond more strongly to news in periods of large market uncertainty and when negative or large shocks occur. Overall, the model based on real-time data is capable of explaining about 75% of the monthly directional changes of the US dollar-euro exchange rate, although it does not explain well the magnitude of the exchange rate changes. JEL Classification: F31, F42, E52

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/cd07ec1d40c1a8852a3de95875fb56191294ce29

Citations in the corpus

• Risk, Uncertainty and Monetary Policy (2013, unknown): “For monetary policy, we rely on a well-established literature that uses high frequency changes in Fed funds futures rates to measure monetary policy shocks (see, for example, Faust, Swanson and Wright, 2004).”
• Exchange Rate Predictability (2013, unknown): “For example, Andersen, Bollerslev, Diebold and Vega (2003), Ehrmann and Fratzscher (2005), Faust, Rogers, Wang and Wright (2007) and Fratzscher (2009) study whether, in-sample, exchange rates react in a very short window around the announcement.”