Advanced Search
MyIDEAS: Login to save this article or follow this journal

Market efficiency broadcasted live: ECB code words and euro exchange rates

Contents:

Author Info

  • Rosa, Carlo
Registered author(s):

    Abstract

    This paper examines the impact of the European Central Bank (ECB) monetary policy on euro exchange rate returns using an event study with intraday data for five currencies (the euro exchange rate versus the US dollar, the British pound, the Canadian dollar, the Swiss franc, and the Japanese yen). I construct two indicators of news about monetary policy stemming separately from policy decisions and the press conference. Estimation results show that the surprise component of communication has highly statistically significant effects on exchange rates, whereas the response of euro exchange rates to the unanticipated change in the policy rate is more muted. I also estimate the financial market impact on euro exchange rates of US, European and German macroeconomic news, and I show that the impact of the ECB press conference is economically important. The process of fully incorporating the ECB news shock takes about 1h, and thus this result suggests that the whole press conference (both the Introductory Statement and the Q&A part) provides valuable information to market participants.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/pii/S0164070413001183
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Macroeconomics.

    Volume (Year): 38 (2013)
    Issue (Month): PB ()
    Pages: 167-178

    as in new window
    Handle: RePEc:eee:jmacro:v:38:y:2013:i:pb:p:167-178

    Contact details of provider:
    Web page: http://www.elsevier.com/locate/inca/622617

    Related research

    Keywords: Central bank decisions and statements; High-frequency exchange rates;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange?," Center for Financial Institutions Working Papers 02-23, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. Fatum, Rasmus & Scholnick, Barry, 2008. "Monetary policy news and exchange rate responses: Do only surprises matter?," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 1076-1086, June.
    3. Monika Piazzesi & Eric Swanson, 2004. "Futures Prices as Risk-adjusted Forecasts of Monetary Policy," NBER Working Papers 10547, National Bureau of Economic Research, Inc.
    4. Michael Lamla & Sarah Lein, 2011. "What matters when? The impact of ECB communication on financial market expectations," Applied Economics, Taylor & Francis Journals, vol. 43(28), pages 4289-4309.
    5. Romer, Christina D. & Romer, David H., 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," Department of Economics, Working Paper Series qt5h07k8vf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    6. Christina D. Romer & David H. Romer, 2003. "A New Measure of Monetary Shocks: Derivation and Implications," NBER Working Papers 9866, National Bureau of Economic Research, Inc.
    7. Ferrero, Giuseppe & Nobili, Andrea, 2008. "Futures contract rates as monetary policy forecasts," Working Paper Series 0979, European Central Bank.
    8. Jonathan Kearns & Phil Manners, 2006. "The Impact of Monetary Policy on the Exchange Rate: A Study Using Intraday Data," International Journal of Central Banking, International Journal of Central Banking, vol. 2(4), December.
    9. Refet Gürkaynak & Brian Sack & Eric Swanson, 2004. "Do actions speak louder than words? the response of asset prices to monetary policy actions and statements," Finance and Economics Discussion Series 2004-66, Board of Governors of the Federal Reserve System (U.S.).
    10. Sager, Michael J. & Taylor, Mark P., 2004. "The impact of European Central Bank Governing Council announcements on the foreign exchange market: a microstructural analysis," Journal of International Money and Finance, Elsevier, vol. 23(7-8), pages 1043-1051.
    11. Michael Melvin & Christian Saborowski & Michael Sager & Mark P. Taylor, 2009. "Bank of England Interest Rate Announcements and the Foreign Exchange Market," CESifo Working Paper Series 2613, CESifo Group Munich.
    12. Magnus Andersson & Lars Jul Overby & Szabolcs Sebestyén, 2009. "Which News Moves the Euro Area Bond Market?," German Economic Review, Verein für Socialpolitik, vol. 10, pages 1-31, 02.
    13. Michael Ehrmann & Marcel Fratzscher, 2005. "Equal Size, Equal Role? Interest Rate Interdependence Between the Euro Area and the United States," Economic Journal, Royal Economic Society, vol. 115(506), pages 928-948, October.
    14. Claus Brand & Daniel Buncic & Jarkko Turunen, 2010. "The Impact of ECB Monetary Policy Decisions and Communication on the Yield Curve," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1266-1298, December.
    15. Marie Musard-Gies, 2006. "Do European Central Bank'S Statements Steer Interest Rates In The Euro Zone?," Manchester School, University of Manchester, vol. 74(s1), pages 116-139, 09.
    16. F. M. Bandi & J. R. Russell, 2008. "Microstructure Noise, Realized Variance, and Optimal Sampling," Review of Economic Studies, Oxford University Press, vol. 75(2), pages 339-369.
    17. Ben S. Bernanke & Kenneth N. Kuttner, 2003. "What explains the stock market's reaction to Federal Reserve policy?," Staff Reports 174, Federal Reserve Bank of New York.
    18. Carlo Rosa, 2011. "Talking Less And Moving The Market More: Evidence From The Ecb And The Fed," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(1), pages 51-81, February.
    19. Barro, Robert J., 1978. "Unanticipated Money, Output, and the Price Level in the United States," Scholarly Articles 3450988, Harvard University Department of Economics.
    20. Fatum, Rasmus & Scholnick, Barry, 2006. "Do Exchange Rates Respond to Day-to-Day Changes in Monetary Policy Expectations When No Monetary Policy Changes Occur?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1641-1657, September.
    21. Rosa, Carlo & Verga, Giovanni, 2007. "On the consistency and effectiveness of central bank communication: Evidence from the ECB," European Journal of Political Economy, Elsevier, vol. 23(1), pages 146-175, March.
    22. Carlo Rosa & Giovanni Verga, 2008. "The Impact of Central Bank Announcements on Asset Prices in Real Time," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 175-217, June.
    23. Ehrmann, Michael & Fratzscher, Marcel, 2007. "Explaining monetary policy in press conferences," Working Paper Series 0767, European Central Bank.
    24. León, Ángel & Sebestyén, Szabolcs, 2012. "New measures of monetary policy surprises and jumps in interest rates," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2323-2343.
    25. Kevin Evans & Alan Speight, 2011. "Intraday euro exchange rates and international macroeconomic announcements," The European Journal of Finance, Taylor & Francis Journals, vol. 17(2), pages 83-110.
    26. Faust, Jon & Rogers, John H. & Wang, Shing-Yi B. & Wright, Jonathan H., 2007. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1051-1068, May.
    27. Rosa, Carlo, 2011. "The high-frequency response of exchange rates to monetary policy actions and statements," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 478-489, February.
    28. Balduzzi, Pierluigi & Elton, Edwin J. & Green, T. Clifton, 2001. "Economic News and Bond Prices: Evidence from the U.S. Treasury Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(04), pages 523-543, December.
    29. Kerstin Bernoth & Jürgen von Hagen, 2004. "The Euribor Futures Market: Efficiency and the Impact of ECB Policy Announcements," International Finance, Wiley Blackwell, vol. 7(1), pages 1-24, 03.
    30. Michael Woodford, 2005. "Central bank communication and policy effectiveness," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 399-474.
    31. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
    32. Evans, Martin D.D. & Lyons, Richard K., 2008. "How is macro news transmitted to exchange rates?," Journal of Financial Economics, Elsevier, vol. 88(1), pages 26-50, April.
    33. Jansen, David-Jan & De Haan, Jakob, 2005. "Talking heads: the effects of ECB statements on the euro-dollar exchange rate," Journal of International Money and Finance, Elsevier, vol. 24(2), pages 343-361, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:jmacro:v:38:y:2013:i:pb:p:167-178. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.