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How is Macro News Transmitted to Exchange Rates? (December 2003)

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Author Info
Martin D. D. Evans(Georgetown University and NBER) and Richard K. Lyons(U.C. Berkeley and NBER, Haas School of Business) () (Department of Economics, Georgetown University)

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Abstract

This paper tests whether macroeconomic news is transmitted to exchange rates via the transactions process and if so, what share occurs via transactions versus the traditional direct channel. We identify the link between order flow and macro news using a heteroskedasticity-based approach, a la Rigobon and Sack (2002). In both daily and intra-daily data, order flow varies considerably with macro news flow. At least half of the effect of macro news on exchange rates is transmitted via order flow. Classification-JEL Codes:

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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~05-05-05.

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Handle: RePEc:geo:guwopa:gueconwpa~05-05-05

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Postal: Georgetown University Department of Economics Washington, DC 20057-1036
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Postal: Marcia Suss Administrative Officer Georgetown University Department of Economics Washington, DC 20057-1036
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This paper has been announced in the following NEP Reports: References listed on IDEAS
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  2. Andersen T. G & Bollerslev T. & Diebold F. X & Labys P., 2001. "The Distribution of Realized Exchange Rate Volatility," Journal of the American Statistical Association, American Statistical Association, vol. 96, pages 42-55, March. [Downloadable!] (restricted)
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  5. Ito, Takatoshi & Roley, V. Vance, 1987. "News from the U.S. and Japan : Which moves the yen/dollar exchange rate?," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 255-277, March. [Downloadable!] (restricted)
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  6. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July. [Downloadable!] (restricted)
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  11. Klein, Michael & Mizrach, Bruce & Murphy, Robert G, 1991. "Managing the Dollar: Has the Plaza Agreement Mattered?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(4), pages 742-51, November. [Downloadable!] (restricted)
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  13. Balduzzi, Pierluigi & Elton, Edwin J. & Green, T. Clifton, 2001. "Economic News and Bond Prices: Evidence from the U.S. Treasury Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(04), pages 523-543, December. [Downloadable!]
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  15. Rigobon, Roberto & Sack, Brian, 2004. "The impact of monetary policy on asset prices," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1553-1575, November. [Downloadable!] (restricted)
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  16. 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)
  17. Michael W. Brandt & Kenneth A. Kavajecz, 2004. "Price Discovery in the U.S. Treasury Market: The Impact of Orderflow and Liquidity on the Yield Curve," Journal of Finance, American Finance Association, vol. 59(6), pages 2623-2654, December. [Downloadable!] (restricted)
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(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.)

  1. P. Siklos, M. Bohl, 2006. "Policy Words and Policy Deeds: The ECB and the Euro," Working Papers eg0050, Wilfrid Laurier University, Department of Economics, revised 2006. [Downloadable!]
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