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The Impact of News in the Dollar/Deutschmark Exchange Rate: Evidence from the 1990's

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Author Info
Stefan Krause ()

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Abstract

In this paper I analyse three specifications of spot exchange rate models by using an alternative approach in defining the news variable. In particular, I employ quarterly data of the U.S. dollar / German Mark exchange rate for the period 1991-1998 in order to determine whether the effect of news announcements on the exchange rate is still present in the decade of the 1990's. The empirical evidence suggests that news do not seem to provide explanatory power for justifying deviations from either the efficient markets hypothesis or the uncovered interest rate parity. Nevertheless, newspaper announcements and news about inflation do contribute to significantly explain short run departures from purchasing power parity (PPP) with the expected sign, supporting the view that deviations from PPP will arise from new information available in the market.

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Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 0422.

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Date of creation: Dec 2004
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Handle: RePEc:emo:wp2003:0422

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  1. Edison, Hali J, 1997. "The Reaction of Exchange Rates and Interest Rates to News Releases," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(2), pages 87-100, April. [Downloadable!] (restricted)
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  2. Cavaglia, Stefano M. F. G. & Wolff, Christian C. P., 1996. "A note on the determinants of unexpected exchange rate movements," Journal of Banking & Finance, Elsevier, vol. 20(1), pages 179-188, January. [Downloadable!] (restricted)
  3. Karfakis, Costas & Kim, Suk-Joong, 1995. "Exchange rates, interest rates and current account news: some evidence from Australia," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 575-595, August. [Downloadable!] (restricted)
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  4. Hardouvelis, Gikas A., 1988. "Economic news, exchange rates and interest rates," Journal of International Money and Finance, Elsevier, vol. 7(1), pages 23-35, March. [Downloadable!] (restricted)
  5. Hogan, Ked & Melvin, Michael & Roberts, Dan J., 1991. "Trade balance news and exchange rates: Is there a policy signal?," Journal of International Money and Finance, Elsevier, vol. 10(1, Supple), pages S90-S99, March. [Downloadable!] (restricted)
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