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Intraday effects of macroeconomic shocks on the US Dollar-Euro exchange rates

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  • Han, Young Wook
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    Abstract

    This paper characterizes the intriguing features of high frequency 15-min Dollar-Euro foreign exchange returns data. The FIGARCH model is found to be the preferred specification for the long memory volatility process in the high frequency returns. This paper then examines how macroeconomic shocks affect the high frequency Dollar-Euro returns on an intraday basis. Quantifying the intraday effects of the shocks on the high frequency returns by using a linearly distributed lag dummy variable, this paper finds that the effects on the high frequency returns are generally statistically significant and that they appear to be asymmetric depending on the regions and the signs of the shocks and to be persistent for several lags even within a day. However, the macroeconomic shocks are found not to affect the long memory property in the high frequency returns implying that the linear dummy variable model may not be enough to explain the long memory property.

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    Bibliographic Info

    Article provided by Elsevier in its journal Japan and the World Economy.

    Volume (Year): 20 (2008)
    Issue (Month): 4 (December)
    Pages: 585-600

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    Handle: RePEc:eee:japwor:v:20:y:2008:i:4:p:585-600

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    Web page: http://www.elsevier.com/locate/inca/505557

    Related research

    Keywords: High frequency Dollar-Euro exchange rates Long memory volatility FIGARCH model Macroeconomic shocks Asymmetric responses;

    References

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    1. Rasmus Fatum & Michael M. Hutchison, . "ECB Foreign Exchange Intervention and the Euro: Institutional Framework, News and Intervention," EPRU Working Paper Series 02-10, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
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    9. Chang, Yuanchen & Taylor, Stephen J., 2003. "Information arrivals and intraday exchange rate volatility," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(2), pages 85-112, April.
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    11. Andersen, Torben G. & Bollerslev, Tim, 1997. "Intraday periodicity and volatility persistence in financial markets," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 115-158, June.
    12. Ederington, Louis H & Lee, Jae Ha, 1993. " How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, vol. 48(4), pages 1161-91, September.
    13. Baillie, Richard T. & Bollerslev, Tim & Mikkelsen, Hans Ole, 1996. "Fractionally integrated generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 74(1), pages 3-30, September.
    14. Gallant, A. Ronald, 1982. "Unbiased determination of production technologies," Journal of Econometrics, Elsevier, vol. 20(2), pages 285-323, November.
    15. Richard Payne, 1996. "Announcement Effects and Seasonality in the Intra-day Foreign Exchange Market," FMG Discussion Papers dp238, Financial Markets Group.
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