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Do Both U.S. and Foreign Macro Surprises Matter for the Intraday Exchange Rate? Evidence from Japan

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  • Rasmus Fatum

    (University of Alberta)

  • Michael Hutchison

    (University of California, Santa Cruz)

  • Thomas Wu

    (University of California, Santa Cruz)

Abstract

We investigate the effects of both U.S. and Japanese news surprises, measured as the difference between macroeconomic announcements and preceding survey expectations, on the intraday JPY/USD exchange rate. No previous study has considered the intraday JPY/USD exchange rate responses to a broad set of comparable news surprises from both the U.S. and Japan. We show that news surprises from Japan are as influential as those from the U.S. in moving 5-minute JPY/USD exchange rate returns and, therefore, focusing on U.S. news while disregarding foreign news misses half the story. Our results also show that distinguishing between positive and negative news surprises and the state of the Japanese business cycle is important in understanding the link between exchange rates and news.

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Bibliographic Info

Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 2009-01.

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Length: 20 pages
Date of creation: Nov 2008
Date of revision: Jan 2009
Handle: RePEc:kud:epruwp:09-01

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Keywords: Foreign Exchange Rates; Intraday Data; Macroeconomic News Effects;

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  1. Charles Engel & Nelson C. Mark & Kenneth D. West, 2007. "Exchange Rate Models Are Not as Bad as You Think," NBER Working Papers 13318, National Bureau of Economic Research, Inc.
  2. Dacorogna, Michael M. & Muller, Ulrich A. & Nagler, Robert J. & Olsen, Richard B. & Pictet, Olivier V., 1993. "A geographical model for the daily and weekly seasonal volatility in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 12(4), pages 413-438, August.
  3. BAUWENS, Luc & BEN OMRANE, Walid & GIOT, Pierre, . "News announcements, market activity and volatility in the euro/dollar foreign exchange market," CORE Discussion Papers RP -1787, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Richard Clarida & Daniel Waldman, 2007. "Is Bad News About Inflation Good News for the Exchange Rate?," NBER Working Papers 13010, National Bureau of Economic Research, Inc.
  5. Melvin, Michael & Yin, Xixi, 2000. "Public Information Arrival, Exchange Rate Volatility, and Quote Frequency," Economic Journal, Royal Economic Society, vol. 110(465), pages 644-61, July.
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