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Exchange rates and fundamentals - new evidence from real-time data Author info | Abstract | Publisher info | Download info | Related research | Statistics Michael Ehrmann () (European Central Bank )
Marcel Fratzscher () (European Central Bank )
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This paper analyses the link between economic fundamentals and exchange rates by investigating the importance of real-time data. We find that such economic news in the United States, Germany and the euro area have indeed been a driving force behind daily US dollar – euro/DEM exchange rate developments in the period 1993-2003. The larger importance of US macroeconomic news is at least partly explained by their earlier release time compared to corresponding German and euro area news. The exchange rate is also shown to respond more strongly to news in periods of large market uncertainty and when negative or large shocks occur. Overall, the model based on real-time data is capable of explaining about 75% of the monthly directional changes of the US dollar-euro exchange rate, although it does not explain well the magnitude of the exchange rate changes.
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Paper provided by European Central Bank in its series Working Paper Series with number
365.
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Length: 45 pages
Date of creation: May 2004Date of revision:
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Keywords: exchange rates fundamentals announcements news real-time data United States euro area interdependence US dollar euro EMU. Other versions of this item:
Find related papers by JEL classification: F31 - International Economics - - International Finance - - - Foreign Exchange F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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references Cited by : (explanations , 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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Marcel Fratzscher, 2007.
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