ifdp · September 30, 1996

The Reaction of Exchange Rates and Interest Rates to News Releases

Abstract

This paper examines the response of exchange rates and interest rates--U.S. and foreign--to economic news. The news is associated with the surprise component of the monthly release of six U.S. macroeconomic variables. The results suggest that dollar exchange rates systematically react to news about real economic activity--a surprise of 100,000 on nonfarm payroll employment leads to a 0.2 percent appreciation of the exchange rate. In general, exchange rates do not react systematically to news on inflation. By contrast, U.S. interest rates respond to both types of news, although the response continues to be extremely small, on the order of 1 to 2 basis points. Finally, Japanese interest rates systematically react, but to a very minor extent, to news about U.S. real economic activity, while German rates in general do not.

Abstract m a a 1 2 s a

HaliJ. Edisonl 1. Introduction effects i m a a ti a a a ‘TheauthorisasenioreconomistintheDivisionofInternationalFinance,BoardofGovernorsoftheFederal ReserveSystem. IwouldliketothankAthanasiosOrphanidesforprovidingmewiththedataandhisgeneral advice. IwouldalsoliketothankStevenBraun,JonFaust,KarenJohnson,JamesKennedy,JeffreyShafer,and RalphSmithforhelpfbldiscussions. IthankAlexisZarechnakforhiseflicientresearchassistance.Theviews expressedinthispaperaresolelytheresponsibilityoftheauthorandshouldnotbeinterpretedasreflectingthose oftheBoardofGovernorsoftheFederalReserveSystemorothermembersof itsstaff.

A a a I c a a m a o a 2Recently,Becker,FinnertyandKopecky(1995)haveexaminedcross-countryspillovereffectsoninterest rates. 3Hogan,MelvinandRoberts(1991)findthesametradebalanceeffect. Irwin(1989)findsasignificant breakintherelationshipbetweentradebalancemovementsanddollarexchangeoccurringinJune1984.

a it s la po m I 2 a 3 4 5 Data 2.1 The expectations data 4ArecentstudybyHarrisandZabka(1995)alsofindsasignificantandpositivelinkbetweennon-farm payrollsurprisesandtheexchangerate.

a m . a I a c 1 9 d ‘SeeforexampleEngelandFrankel(1984),HakkioandPearce(1985),ItoandRoley(1987),Hardouvelis (1988),andHoganetal(1991). isoneseveredrawbackto themethodologyI employ,whichisaprobleminmostotherstudies,and thatisthetreatmentofthemedianforecastasmeasureofcentraltendency. Thismethodologyfailsto take accountoftheindividualsurveyrespondents’uncertaintyaswellasthegeneraldiversityofopinions.

s 3 a I 4 a a u I a I a I Exchange Rates 7ForPPI,thereare56announcementswheretheexpectationemorispositiveand97announcementswhere theerrorsarenegative,excludingallzerovalues ThedifferenceforNFislesspronounced:63negativesurprises and48positivesurprises.

As, = 100*(logs, - logs,.,) where Stdenotesthe exchange a a Interest Rates time horizons for interest I a Patterns in the response of the exchange rate to news 1 2 a 1 r As, = aO+ ;ai Xit’ (2) i j = 1 n = 5

a a a a s 5 5 A a I s Reaction to positive and negative errors The 5 a I 6 *Theexplanatorypowerofthesesixvariablesis low:theadjustedR-squareisabout0.005forbothexchange rates. Notethatthedependentvariableisthechangeinthelogofeachexchangerate. Theresidualdiagnostics suggeststheresidualsarewhitenoise,indicatingnoobviousmisspecification.Thegeneralfitoftheseequations areconsistentwiththoseintheliterature,seeforexampleHardouvelis(1988). 9Thedefinitionofpositiveerrorsincludeszero. Thefindingsarenotalteredwhenpositiveerrorsaredefined tobeallvaluesgreaterthanzeroasopposedto greaterthanorequalto zero.

th d a q I I 7 I O s 8 m m I S

m a 9 D a I I I a I 1 3 a 101alsoestimatedtheseequationswhereI includedthelaggeddependentvariable. Thecoefficientandthe equationfitwassomewhatbetter,buttheinterpretationofthenewscoefficientsdidnotchange.

-10- 5 1 s I a I Conclusion m m a pe q

References JournalofInternationalMoneyand Finance, BrookingsPapers on EconomicActivity, 143-94. Journalof MonetaryEconomics, 11:321-336. JournaZofMonetaryEconomics, TheHandbookofInternationalEconomics JournaZofPolitical Economy, 70:2 235-42. A OxfordBulletinofEconomicsand Statistics, 57:265-275. FederalReserveBankofRichmondEconomicQuarterly, ForecastingEconomic TimeSeries,New York: EconomicInquiry,23: 621-636. H JournaZOf InternationalMoney andFinance, a JournalOfInternationalMoneyand Finance, Current IssuesinEconomicsandFinance, JournalofMoney, Credit andBanking, Economic Letters,

JournalofMoneta~ Economics, JournalofMoney, Creditand Banking, JournaZof Business,58;49-67. EconomicReview, EconomicLetters, 14: Journalof Finance,

Table1 AbsoluteFrequencyDistributionsofExpectationErrors(181observations)’ Variable ErrorSize(percentagepoints) <-0.3 -0.3 -0.2 -0.1 0 +().1 +().2 +().3 *().3 CPI 4 5 16 40 53 36 18 6 3 PPI 30 21 20 26 28 20 14 8 14 1P 20 14 21 22 26 32 24 5 17 RS 59 6 13 15 9 10 8 11 50 UN 6 6 32 38 42 28 17 8 4 ErrorSize(thousandsofpersons)2 <-100” -1oo -50 -10 0 10 50 100 >1(.)0 NF 20 20 19 4 0 4 13 20 21 Xes:kxpectatlonserrorsarethedllterencebetweentheannouncedvalueandthemedmnotthesurveyresponses. CPI:Theconsumerpriceindexforallurbanconsumers. PPI:Theproducerpriceindexforfinishedgoods. 1P:Thetotalindexofindustrialproduction. RS:Thenominalvalueofretailsales. UN:Theunemploymenrtate. NF:Thenon-farmpayrollemployment. 1.SamplePeriod:February1980-February1995. 2.SamplePeriod:February1985-Febmary1995.

Table2 DescriptiveStatisticsofExpectationErrors“2 Variable Mean t-statistic CPI -0.0005 -0.046 PPI -0.082 -3.61” 1P -0.0116 -0.48 Rs -0.040 -0.67 UN 0.954 1.76 NF 3.52 0.32 Note: CP1:Theconsumerpriceindexforallurbanconsumers. PPI:Theproducerpriceindexforfinishedgoods. 1P:Thetotalindexofindustrialproduction. RS:Thenominalvalueofretailsales. UN:Theunemploymentrate. NF:Thenon-farmpayrollemployment. 1.SamplePeriod:February1980-February1995. 2.SamplePeriod:February1985-February1995.

Table3 ExpectationErrorssinceJanuary1994(percentagepoints) Date Variable CPI PPI 1P Rs UN NF Jan.1994 -0.2 0.0 0.3 0.4 -0.1 -32 Feb.1994 0.0 -0.2 0.1 -0.8. -0.2 -153 Mar.1994 0.0 0.2 0.2 1.0 -0.2 67 Apr.1994 0.0 0.0 -0.2 -0.6 0.0 226 May1994 -0.1 -0.3 0.0 0.5 -0.1 92 Jun.1994 -0.2 -0.3 0.1 -0.2 -0.4 -84 Jul.1994 0.0 -0.3 0.4 0.1 -0.2 137 Aug.1994 0.0 0.2 0.1 -0.5 0.0 49 Sep.1994 0.0 0.2 0.2 -0.2 0.0 -54 Oct.1994 0.1 -0.7 -0.3 0.2 -0.2 -9 Nov.1994 -0.1 -0.6 0.2 0.4 -0.1 -51 Dec.1994 -0.2 0.1 0.0 0.7 -0.2 100 Jan.1995 -0.3 0.0 0.4 -0.8 -0.2 -4 Feb.1995 0.1 -0.1 0.0 -0.2 0.3 -91 )tes: 1.Numbersarethousandsofpersons.

Table4 UnitRootTests February1980-February1995 1 Type Variable(t-statistic) CPI PP1 1P Rs UN NF’ Released -6.0” -8.1” -5.2” -13.2” -1.25 -3.58” Expected -5.5” -6.1” -4.6” -12.2” -1.14 -2.24 CointTest -15.0” -12.1” -11.5” -16.6” -12.2” -11.40” Row1(Released)unitroottestontheactualreleasedata. Row2(Expected)unitroottestonthesurveydata. Row3reportsaEngle-Grangertwostepcointegrationtestbetweenthereleasedandtheexpectedvariable. TheunitroottestappliedisanaugmentedDickey-Fullertestwithonelag. *denotessignificantat5percentlevel.

Table5 AverageResponseRateofMark/DollarandYen/DollarExchangeRatestoNews(percent) Rate/Period NewsVariable CPI PPI 1P Rs UN NF DM/$ Feb.80- Feb95 -0.34 0.07 0.24 0.04 -0.49’ 0.002’ Feb.84- Feb95 -0.77 0.07 0.33 0.07 -0.51 0.002” Yen/$ Feb.80- Feb95 0.26 0.13 -0.4 0.00 -0.27 0.002” Feb.84- Feb95 -0.21 0.17 0.02 0.03 -0.4 0.002” Dt T ereare181announcements(kebruary-980toFebruary1995)ioreachvanabieexceptnonfarmpayrollwherethereareonly121 announcements(Febmary1985-February1995).Theresultarebasedonthefollowingestimatedequation: As, = aO+ ~ ai (Xi,- X i where: Astdenotesthechangeint l oftheexchangerateduringthereleaseday, x,, denotesactualreleasedataattimetandicorrespondstoCPI,PPI,1P,RS,UN,andNFrespectively, xc,,denotesmarketexpectations--measuredusingsurveydatafromMoneyMarketServices--onthecorrespondingvariable. Theequationisestimatedusingallnewsvariables- hencethesummation-- toaccountforthepossibilityofsimultaneousannouncements. Thefollowingsymbols*and #indicatesignificantatthe5and10percentlevel.

Table6 AverageResponseRateofMark/DollarandYen/DollarExchangeRatesto PositiveandNegativeErrors(r)ercent) CPI PPI 1P Rs UN NF Pos. Neg. Pos. Neg. Pos. Neg. Pos. Neg. Pos. Neg. Pos. Neg. Dh4/$ Feb80- Feb95 -0.35 -0.33 0.24 -0.03 0.16 0.32 -0.15” 0.21” 0.06 -0.96” 0.002” 0.002” Feb84- Feb95 -0.78 -0.77 0.33 -0.16 0.25 0.32 -0.15’ 0.21” 0.06 -0.96” 0.002” 0.002” Yen/$ Feb80- Feb95 0.12 0.37 0.22 0.06 0.02 -0.09 -0.17” 0.16” -0.11 -0.39 0.002” 0.001” Feb84- Feb95 -0.05 0.05 0.39 -0.12 0.05 0.069 -0.21’ 0.19’ 0.03 -0.77 0.001” O.OO1+ Notes:Theestimatedequation1sbasedonthefolowingregression: As, = aO t=j i where & denotesthechangeintheexchangerateduringthereleaseday x,, denotesactualreleasedataattimetandicorrespondstoCPI,PPI,1P,RS,UN,andNFrespectively, x’,,denotesmarketexpectations- measuredusingsurveydatafromMoneyMarketServices--onthecorrespondingvariable. DP,andD.denotepositiveandnegativedummies,respectively. Thefollowingsymbols*and#indicatesignificantatthe5and10percentlevel.

Table7 AverageResponseRateofMark/DollarandYen/DollarExchangeRatesto LargeandSmallErrors(percent) CPI PPI 1P Rs UN NF Small Large Small Large Small Large Small Large Small Large Small Large DM/$ Feb80~Feb95 -0.33 -0.33 -0.09 0.15 0.64” 0.94 -0.11 0.04 1.07 -0.58 -0.003 0.002” Feb84- Feb95 -0.43 -0.84 -0.11 0.19 0.69’ 0.13 -0.61 0.08 1.53 -0.67’ -0.003 0.002’ Yen/$ Feb80- Feb95 -0.38 0.39 0.24 0.33 0.36 -0.19 -0.15 0.006 1.85 -0.40 -.004 0.002” Feb84- Feb95 -1.41 0.15 -0.36 0.51 0.35 -0.126 -0.58 0.04 1.66 -0.56 -.004 0.002” xl,.4,3a”-..+.-”-+“-..#A..*....-.-..4a,........--”-...?-..-- I UL 1I cw c I U U U NI I IG I qu Ast= aO i i where: Astdenotesthechangeintheexchangerate(thereleasedaylessthepreviousday) xi, denotesactualreleasedataattimetandicorrespondstoCPI,PPI,1P,RS,UN,andNFrespectively, X’itdenotesmarketexpectations--measuredusingsurveydatafromMoneyMarketServices--onthecorrespondingvariable. D, andD,denotesmallandlargedummies,respectively. Thefollowingsymbols*and #indicatesignificantatthe5and10percentlevel.

-20- Table8 AverageResponseRateofMarldDollarandYen/DollarExchangeRatestoRecentNews(percent) February1994-February1995 I I Sarr.mlePeriod NewsVariable CPI PPI 1P Rs UN NF DIvIN Feb.80- Feb95 0.04 0.11 0.06 -0.25 -0.97 0.001 Feb.84- Feb95 0.45 0.09 -0.01 -0.29 -1.03 0.001 Yen/$ Feb80- Feb95 -0.13 0.25 0.70 0.06 -1.53’ 0.002 Feb84- Feb95 0.35 0.21 0.67 0.03 -1.56’ 0.002 Otes:TheentnesareonthedummycoefficientDmw. Theestimatedequation1sbasedonthefollowingregression: Ast= aO+ ; a, (xi, - X i p ~n - X 1 i where Astdenotesthechangeintheexchangerateduringthereleaseday x,, denotesactualreleasedataattimetandicorrespondstoCPI,PPI,1P,RS,UN,andNFrespectively, x’,,denotesmarketexpectations- measuredusingsurveydatafromMoneyMarketServices- onthecorrespondingvmiable. D- denoterecentdummy. Thefollowingsymbols*and #indicatesignificantatthe5and10percentlevel.

-21- Table9 AlternativeSpecificationandSampleSizes(percent) SamplePeriod I NewsVariable I CPI PPI 1P M UN NF Mavol’ I DM/$ Feb.80- Feb95* I -0.35 0.06 0.23 0.04 -0.5 0.002” -0.04’ Feb.80- Oct82 I -0.0 0.07 0.23 -0.02 -0.23 na -- Nov82- Apr86 I -1.9” 0.4 0.18 0.21+ -0.87 0.001 .- May86- Jun90 I 0.14 -0.49 0.34 -0.26” -1.05 0.002” -- Jul90- Feb94 -0.19 0.04 0.13 0.59” 0.49 0.003” -. Yen/$ Feb.80- Feb95” I 0.25 0.12 -0.05 0.001 -0.28 0.002” -0.09” Feb.80- Oct82 I 0.53 0.21 -0.03 -0.004 0.41 na -- ! ! Nov82- Apr86 0.12 0.33 0.09 0.09 -0.82’ 0.001 -- I I May86- Jun90 -0.03 -0.21 0.08 -0.17 -0.78 0.0001 -- Jul90- Feb94 I-0.02 -0.12 -0.54 0.05 I 0.69 I 0.003” -me 1 I I I ]tes:‘Mavoldenotesmovmgaveragevolatlfi firstrowmthIStableincludesavariabletorepresentexchangeratevc Itlllty, calculatedasthe5daymovingaverageofsquaredpercentchangesintheexchangerate. Theotherrowsreportcoeftlcientsfromthe standardequation,dividingthesampleascolumn1indicates.Thefollowingsymbolsland#indicatesignificantatthe5and10percent

-22- Table10 AverageResponseRateofVariousInterestRatestoNews Rate/Period NewsVariable CPI PPI 1P Rs UN NF U.S3-Month Feb.80- Feb95 0.11“ Feb.84- Feb95 0.06’ 0.05” 0.07” 0.03” -0.12” 0.0005” U.S.10-year Feb.80- Feb95 0.14” 0.09” 0.05* 0.04+ -0.)2” 0.0004” Feb.84- Feb95 0.11“ 0.06’ 0.03” 0.03+ -0.11“ 0.0004” German3-Month Feb.80- Feb95 -0.28” -0.01 0.001 0.01 -0.005 -0.000 Feb.84- Feb95 -0.04 -0.02 -0.01 0.01 -0.005 -0.000 German10-year Feb.80- Feb95 -0.00 0.01 0.002 0.008 -0.02 0.000 Feb.84- Feb95 -0.002 0.01 0.003 0.003 -0.01 0.000 Japanese3-month Feb.80- Feb95 0.01 0.002 0.001 -0.001 -0.03” -0.00005” Feb.84- Feb95 0.01 0.004 -0.002 -0.001 -0.03” -0.00005” Japanese10-year Feb.80- Feb95 -0.03 0.01 -0.01 0.01 0.00 -0.000 Feb.84- Feb95 -0.04 0.01 -0.01 0.08 0.004 -0.0001 r-i—te<-..T...e. e- em I h n t fn r . st eo “--------- - ~---..,.. . ‘- “ ‘ ‘ W‘ ‘ 1 ‘6 Ar, = aO + ~ ai (xi, - Xif) i where Ar,denotesthechangeintheinterestrateduringthereleaseday xit denotesactualreleasedataattimetandicorrespondstoCPI,PPI,1P,RS,UN,andNFrespectively, x’,,denotesmarketexpectations- measuredusingsurveydatafromMoneyMarketServices--onthecorrespondingvariable. Thefollowingsymbolsland#indicatesignificantatthe5and10percentlevel.

-23- Data Appendix Exchange Rates Interest Rates Schedule Release Data Survey Data

1 DM/$ExchangeRate Reactionto News Pemnt PaunK 3 [ 3“4~ l I l l l 1 l 1 l l l 8 : I l ll l l l : l l : l i U l i 0.0 l l 8 l l : l l l I : l 9 l l l 8 : l .1 l l l l l l - 4I , ll l w I - ~ - I I - - 0 0 0 -0.5 -0.3 -0.1 0.1 0.3 0.5 3 8 I * l I . *. .* 1 9 . l 1:: l $.* . li t . l ; :: . . “ at ; l . e “ . 1 I l l l - l l l l l l l 1 ll . . . l l 8 e . l l l 0. l 1“ 9 l ‘! 8 l ,. : Q ,! ! : “ l l ! 0.0 l .9 8 .~. 1 l : l : ll O l I . l l 8 I l I - -1 ‘ .( 0.0 ~.~ 1,0 - -1 I .0 -0.5 0.0 0.5 1 I .0 -. Uceot 3 l l l 1 1 l l l O 0.0 l l l l l .lO Jo l 9 l* l *.*0 l l* l l l l %** .= l ll l l : - *l ..0 . l . O . : l l 8 * l -1 - . - . -0.3 -0.1 0.1 0.3 - - -100 -50 0 so 100 150 i

2 YEN/$ExchangeRate Reactionto News ~.4P er ~ l l 1 , 0 l 9 $ : l l t I l 8l l l : ! i l l I : ; 8 l l l -1 l -3 .o ‘ .( - 0 0 0.5 -- - - 0.5 -0.3 -0.1 0.1 0.3 o.~ P 3 3 l 1 1 I . l8 l8° i. l l i l II ,” b. @ i, .l ::. 1 0 I ~ : l I* l l l l l I l l -[ t ll l - -,,~ .(),5 - - -0 ‘ .5 -0.3 -0.1 0.1 0.3 0.5 ~ 1 9 l 9 I 9 l* l .0 l l .* ** 0.0 l 9“ . C . l l l l 7 4.H l : * l , “ - = 0 “ . . : : .9l. * l l ** > “: “ “*” 0 \ ““ l l m l l* l l -1.7~ l . ~ - -)50 -1oo -50 0 50 100 150 200

3 US 3-Month LnterestRate Reactionto News 1980toFebruary 1995 ~*Percent Prxcaol 0 ~ I l 04 l l 00 “ l ~lli~io I (, l l : l l l l 8 -0.4 l l l l l l - ~ l l l -oR .0 1 .5 - - 0 0 0 J - - - - 0 0 0 0 ~ l l l l . l l *:9 l l l l l l w <I l l 0 ‘ : ,~ 1 : i 8 0 l * m l Q l - l <I - . - 0 0 1 P cf ~8 l ( l l 0 i ~ill l 8 l l 8 l 8: s l I i. ; 0 9 l l l : : o 9 s l e l -0.4 9 l -u . i - J - - 0 0 ( -26- - ) -iSO -100 -50 0 50 100 150 200

US 10-YearInterestRate Reactionto News Percent 0.4 0 , O. l 8 l 9 l l l i I I o~ . < ( I l ‘l:!.,[i~~: l : l i : t ‘O < {) # (1 l l l 9 l 9 1 l 1[ o l l l l l l ( l l l l ll l l e l l l l l l <, -0.4 - ; l l I I -“.x! - . .“ -0.3 -0.1 0.1 0 c - - - 0 0 0 Pement 0.4, 0 ~ l +l; l I l l 4 0. * I l l O ilk, l : 18 : :“ “ ! * I 0.0 i l o :.* * l * l Ilc: l ~ a , l : l l I : * . : ;. : l : l: l : 0 . * “ * : : ” l ; : : l ~ * ~ . . 9 8 I l -04 l I - 1 I I 1 I -(lx - .1 .“,~ 0.0 ( i(~ - - 0 0 1 NF P er P 0 + f I I I () I 0 l l I l l I o : o i I ! I l t 9l 0 l l l .OO ~ ll* ... /:” l :“ . l l * l l l - l “. l * l l l . ll ,: l ‘. * “ ( I l 9 9 l ~; : l l 8 : l l l : 9 ;“ 1 ( I l l8“ l l.0 * l l O : * l 9 l0 : l \.” l ““d” . # .“ “ “ ! -0.4 l l l - l l -0 .“‘ - -0.1 0.1 ().3 - - I - -100 -50 0 50 ]00 150 20 J 0 0-5-27-

5 German3-MonthInterest Rate Re to News P er P 0 0.4 0 ~ l ( 8 l l l l l l l ( ,l l l l l l l l l l l l 0.090::: 8l**** l l l :: ::;.... :** 1 I l l l l <l l l l l l 4 l l l l l l l l l 9 l l 9 , l l l l -0.4 - , l -08~ - .~,~ .0,; -0.1 0.1 0 - - - 0 0 0 IP 08P ef 0 1 1 (J4 0 9 l l 0 .0 l ** 0 ! l 9 *****.*..**.. l ****. l . . 0.0 1° l . *.**..*** l a l O. l * l 9 l O l l - J . - 0 ( 1 NF ~* Pe ( 0 4l l l l l l l l l4 l l le l l l l 0 l l l l l l l 4l 4l l l 8 l l l l l l l l l l l l l “ * 8 l z.” l l . 0 ’- 0 l :: . - * . l l l . ” “-: .- .“ . ---- - “ . -“ . *l . . < I 4l l - -0.8 - .( - - 0 0 28- - - - -50 0 50 100 150 200

6 German 10-YearInterestRateReactionto News P er Pement 0 0 0 ,, 0 ‘ l I ~ill~,;. 0 ~ l 8 l l l l l l l l -0.4 - -0. . 8 ( ! ).5 - - 0 0 0 - - - - 0 0 0 o~ P el O*P [ 0.4 l i 1 00 i!!{, . . u;”. l l - - , - - 0 ( 1 i I 0.4 1, iliiiio 0.0 !: i l l l l l l -0.4 -0.4 -0.8 . - - 0 0 0 -0. - 8 2 ‘ 00 - -100 -50 0 w .-J too 150 m

7 Japanese 3-MonthInterestRate Reactionto News 1980 ~~ Pa o8Paunt 0 0.4, l 0 , “ ,I 0.0 t 8 <t ~j ill! 8 ,I l s l l -0 f -0.4~ -08 ‘ -0.8 -0.5 .0.3 -0.1 0.1 0.3 0.5 -05 -0.3 -0.1 0.1 0.3 0.5 o8Pacclll 0.4 0.4b l :iiij~lW:, l l *.* il l 0.0(I l 00 b 1I l l l l l l l , l l - -0.4 -08 -0.8 .1 . 0 o 1 -1.0 -0.5 0.0 0.5 1.0 0.4I l -0.4 - oI .~ -200 - -la) -so o so 100 1s0 200

8 Japanese 10-YearInterestRate Reactionto News ~~Percent Paunt 0 0 0.4~ l l 0 ~ l , ~l , I 0“0 i 9 i 9 i! l l 8s l -0.4 -0.4~ -0.8- d -0.8” -0.5 -0.3 -0.1 0.1 0.3 0.5 -0.5 -0.3 -0.1 0.1 0.3 0.5 IP 0 P ef ~8 0.4 0.4 l l l l l *. ilj:~ +l . 0.0 l o :iiiiil~::: l 1 0.0 8 l l l l 8 l l . -0.4 -0.4 ~ -0.8 - -1.0 -0.5 0.0 05 10 -1.0 -0.5 0.0 0.5 1.0 l l , Illi!i!e l l 0.0 o I l l l 1I l -w .0. - ~ *“:0.5 -0.3 -0.1 0.1 0.3 0.5 - - -1oo -so o so 100 1s0

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International Finance Discussion Papers 545 Ba A 544 Ba 543 a 542 a 541 540 Kamin S John H. Rogers 539 538 537 a 536 -34-

International Finance Discussion Papers 1996 a A S M Ex S -33-

Cite this document

APA

Hali J. Edison (1996). The Reaction of Exchange Rates and Interest Rates to News Releases (IFDP 1996-570). Board of Governors of the Federal Reserve System, International Finance Discussion Papers. https://whenthefedspeaks.com/doc/ifdp_1996-570

BibTeX

@techreport{wtfs_ifdp_1996_570,
  author = {Hali J. Edison},
  title = {The Reaction of Exchange Rates and Interest Rates to News Releases},
  type = {International Finance Discussion Papers},
  number = {1996-570},
  institution = {Board of Governors of the Federal Reserve System},
  year = {1996},
  url = {https://whenthefedspeaks.com/doc/ifdp_1996-570},
  abstract = {This paper examines the response of exchange rates and interest rates--U.S. and foreign--to economic news. The news is associated with the surprise component of the monthly release of six U.S. macroeconomic variables. The results suggest that dollar exchange rates systematically react to news about real economic activity--a surprise of 100,000 on nonfarm payroll employment leads to a 0.2 percent appreciation of the exchange rate. In general, exchange rates do not react systematically to news on inflation. By contrast, U.S. interest rates respond to both types of news, although the response continues to be extremely small, on the order of 1 to 2 basis points. Finally, Japanese interest rates systematically react, but to a very minor extent, to news about U.S. real economic activity, while German rates in general do not.},
}