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Interpreting Market Responses to Economic Data

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Author Info

  • Patrick D'Arcy

    (Reserve Bank of Australia)

  • Emily Poole

    (Reserve Bank of Australia)

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    Abstract

    This article discusses how bond, equity and foreign exchange markets have responded to the surprise component of Australian and US macroeconomic data announcements over the past decade. The bond and equity market responses are used to infer changes in market expectations for interest rates and dividend growth rates. Both interest rates and expected dividend growth rates are shown to increase by a similar magnitude in response to upside inflation and employment surprises. The estimated changes in the interest rate and expected dividend growth rate differentials between Australia and the US are also compared with the exchange rate response to data surprises. This allows an assessment of the relationship between expected economic fundamentals and the exchange rate.

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    File URL: http://www.rba.gov.au/publications/bulletin/2010/sep/pdf/bu-0910-5.pdf
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    Bibliographic Info

    Article provided by Reserve Bank of Australia in its journal RBA Bulletin.

    Volume (Year): (2010)
    Issue (Month): (September)
    Pages: 35-42

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    Handle: RePEc:rba:rbabul:sep2010-05

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    Related research

    Keywords: Asset price responses; economic data surprises;

    References

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    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.:
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    1. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2006. "Real-time price discovery in global stock, bond and foreign exchange markets," International Finance Discussion Papers 871, Board of Governors of the Federal Reserve System (U.S.).
    2. Meredith J. Beechey & Jonathan H. Wright, 2008. "The high-frequency impact of news on long-term yields and forward rates: Is it real?," Finance and Economics Discussion Series 2008-39, Board of Governors of the Federal Reserve System (U.S.).
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