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The high-frequency response of exchange rates to monetary policy actions and statements

Listed author(s):
  • Rosa, Carlo

This paper investigates the impact of US monetary policy on the level and volatility of exchange rates using an event study with intraday data for five currencies (the US dollar exchange rate versus the euro, the Canadian dollar, the British pound, the Swiss franc, and the Japanese yen). I construct two indicators of news about monetary policy stemming separately from policy decisions and from balance of risk statements. Estimation results show that both policy decisions and communication have economically large and highly significant effects on the exchange rates, with the surprise component of statements accounting for most of the explainable variation in exchange rate returns in response to monetary policy. This paper also shows that exchange rates tend to absorb FOMC monetary surprises within 30-40Â min from the announcement release.

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File URL: http://www.sciencedirect.com/science/article/pii/S0378-4266(10)00340-7
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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 35 (2011)
Issue (Month): 2 (February)
Pages: 478-489

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Handle: RePEc:eee:jbfina:v:35:y:2011:i:2:p:478-489
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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