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How is Macro News Transmitted to Exchange Rates?

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Martin D. D. Evans
Richard K. Lyons

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9433.

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Date of creation: Jan 2003
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Handle: RePEc:nbr:nberwo:9433

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F31 - International Economics - - International Finance - - - Foreign Exchange

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