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Assessing the impact of macroeconomic news announcements on securities prices under different monetary policy regimes

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  • Andrew Clare
  • Roger Courtenay
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    Abstract

    This paper investigates the impact of UK macroeconomic news announcements on selected futures contracts and exchange rates. A wide set of scheduled public news announcements is included in the study, including: official interest rate decisions, the publication of the Bank of England's Inflation Report, and the minutes of the Bank's Monetary Policy Committee meetings. The study investigates whether the reaction to these announcements has changed since the Bank of England was granted operational independence in May 1997. The results indicate that there may well have been changes in the way that financial markets incorporate key economic data into securities prices. In particular, an increase in the speed of the reaction to interest rate announcements is discovered, but also there is evidence of a fall in the size of the full reaction.

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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2001/wp125.pdf
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    Bibliographic Info

    Paper provided by Bank of England in its series Bank of England working papers with number 125.

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    Date of creation: Feb 2001
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    Handle: RePEc:boe:boeewp:125

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    1. M A S Joyce & V Read, 1999. "Asset price reactions to RPI announcements," Bank of England working papers, Bank of England 94, Bank of England.
    2. Torben G. Andersen & Tim Bollerslev & Peter F. Christoffersen & Francis X. Diebold, 2005. "Volatility Forecasting," NBER Working Papers 11188, National Bureau of Economic Research, Inc.
    3. McQueen, Grant & Roley, V Vance, 1993. "Stock Prices, News, and Business Conditions," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 6(3), pages 683-707.
    4. Ederington, Louis H. & Lee, Jae Ha, 1995. "The Short-Run Dynamics of the Price Adjustment to New Information," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 30(01), pages 117-134, March.
    5. Alvaro Almeida & Richard Payne & Charles Goodhart, 1997. "The Effects of Macroeconomic News on High Frequency Exchange Rate Behaviour," FMG Discussion Papers, Financial Markets Group dp258, Financial Markets Group.
    6. Torben G. Andersen & Tim Bollerslev, 1998. "Deutsche Mark-Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies," Journal of Finance, American Finance Association, American Finance Association, vol. 53(1), pages 219-265, 02.
    7. Michael J. Fleming & Eli M. Remolona, 1997. "What moves the bond market?," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Dec, pages 31-50.
    8. Jon Danielsson & Richard Payne, 1999. "Real Trading Patterns and Prices in Spot Foreign Exchange Markets," FMG Discussion Papers, Financial Markets Group dp320, Financial Markets Group.
    9. Ederington, Louis H & Lee, Jae Ha, 1993. " How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, American Finance Association, vol. 48(4), pages 1161-91, September.
    10. Melvin, Michael & Yin, Xixi, 2000. "Public Information Arrival, Exchange Rate Volatility, and Quote Frequency," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(465), pages 644-61, July.
    11. Mitchell, Mark L & Mulherin, J Harold, 1994. " The Impact of Public Information on the Stock Market," Journal of Finance, American Finance Association, American Finance Association, vol. 49(3), pages 923-50, July.
    12. Jones, Charles M & Kaul, Gautam & Lipson, Marc L, 1994. "Transactions, Volume, and Volatility," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 7(4), pages 631-51.
    13. Becker, Kent G & Finnerty, Joseph E & Kopecky, Kenneth J, 1995. "Domestic macroeconomic news and foreign interest rates," Journal of International Money and Finance, Elsevier, Elsevier, vol. 14(6), pages 763-783, December.
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    Cited by:
    1. Lavan Mahadeva, 2007. "A model of market surprises," Bank of England working papers, Bank of England 327, Bank of England.
    2. Eijffinger, S.C.W. & Geraats, P., 2002. "How Transparent are Central Banks?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-88701, Tilburg University.
    3. Toni Gravelle & Richhild Moessner, 2001. "Reactions of Canadian Interest Rates to Macroeconomic Announcements: Implications for Monetary Policy Transparency," Working Papers, Bank of Canada 01-5, Bank of Canada.
    4. Georgios Chortareas & David Stasavage & Gabriel Sterne, 2002. "Does it pay to be transparent? international evidence form central bank forecasts," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Jul, pages 99-118.
    5. Eijffinger, Sylvester C W & van der Cruijsen, Carin A B, 2007. "The Economic Impact of Central Bank Transparency: A Survey," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6070, C.E.P.R. Discussion Papers.
    6. Iris Biefang-Frisancho Mariscal & Peter Howells, 2006. "Monetary Policy Transparency in the UK:The Impact of Independence and Inflation Targeting," Working Papers 0601, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    7. Jon Faust & John H. Rogers & Shing-Yi B. Wang & Jonathan H. Wright, 2003. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 784, Board of Governors of the Federal Reserve System (U.S.).
    8. 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.
    9. Ana Lasaosa, 2005. "Learning the rules of the new game? Comparing the reactions in financial markets to announcements before and after the Bank of England's operational independence," Bank of England working papers, Bank of England 255, Bank of England.

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