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Time variation in asset price responses to macro announcements

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  • Linda S. Goldberg
  • Christian Grisse

Abstract

Although the effects of economic news announcements on asset prices are well established, these relationships are unlikely to be stable. This paper documents the time variation in the responses of yield curves and exchange rates using high-frequency data from January 2000 through August 2011. Significant time variation in news effects is present for those announcements that have the largest effects on asset prices. The time variation in effects is explained by economic conditions, including the level of policy rates at the time of the news release, and risk conditions: Government bond yields increase in response to "good news," but less so when risk is elevated. Risk conditions matter since they can capture the effects of uncertainty on the information content of news announcements, the interaction of monetary policy and financial stability objectives of central banks, and the effect of news announcements on the risk premium.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 626.

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Date of creation: 2013
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Handle: RePEc:fip:fednsr:626

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Keywords: Rate of return ; Foreign exchange rates ; Assets (Accounting) ; Government securities ; Risk ; Monetary policy;

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Cited by:
  1. Kahn, George A. & Taylor, Lisa, 2014. "Evolving market perceptions of Federal Reserve policy objectives," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 1-64.
  2. Linda S. Goldberg, 2013. "Banking globalization, transmission, and monetary policy autonomy," Staff Reports 640, Federal Reserve Bank of New York.
  3. Chang, Su-Hsin & Contessi, Silvio & Francis, Johanna L., 2014. "Understanding the accumulation of bank and thrift reserves during the U.S. financial crisis," Journal of Economic Dynamics and Control, Elsevier, vol. 43(C), pages 78-106.

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