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The Impact of Macroeconomic News on Exchange Rate Volatility

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  • Helinä Laakkonen

    (University of Jyväskylä, The School of Business and Economics and FDPE, Finland)

Abstract

The impact of the US and European macroeconomic news on the USD/EUR volatility was examined by using the Flexible Fourier Form method. News increased volatility significantly, and the US news was the most important. The much-tested hypothesis of bad news having a greater impact on volatility was re-confirmed. The announcements were also divided into two categories, the first containing the news that gave conflicting information on the state of the economy and the other containing the news that were consistent. Conflicting news were found to increase volatility significantly more and faster than consistent news.

Suggested Citation

  • Helinä Laakkonen, 2007. "The Impact of Macroeconomic News on Exchange Rate Volatility," Finnish Economic Papers, Finnish Economic Association, vol. 20(1), pages 23-40, Spring.
    • Handle: RePEc:fep:journl:v:20:y:2007:i:1:p:23-40
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    References listed on IDEAS

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    Cited by:

    1. Imane El Ouadghiri & Remzi Uctum, 2015. "Jumps in Equilibrium Prices and Asymmetric News in Foreign Exchange Markets," Working Papers hal-04141414, HAL.
    2. Laakkonen, Helinä, 2007. "Exchange rate volatility, macro announcements and the choice of intraday sasonality filtering method," Research Discussion Papers 23/2007, Bank of Finland.
    3. Reinhold Heinlein & Gabriele M. Lepori, 2022. "Do financial markets respond to macroeconomic surprises? Evidence from the UK," Empirical Economics, Springer, vol. 62(5), pages 2329-2371, May.
    4. Lyócsa, Štefan & Molnár, Peter & Plíhal, Tomáš & Širaňová, Mária, 2020. "Impact of macroeconomic news, regulation and hacking exchange markets on the volatility of bitcoin," Journal of Economic Dynamics and Control, Elsevier, vol. 119(C).
    5. repec:rim:rimwps:35-07 is not listed on IDEAS
    6. Laakkonen Helinä & Lanne Markku, 2009. "Asymmetric News Effects on Exchange Rate Volatility: Good vs. Bad News in Good vs. Bad Times," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 14(1), pages 1-38, December.
    7. El Ouadghiri, Imane & Uctum, Remzi, 2016. "Jumps in equilibrium prices and asymmetric news in foreign exchange markets," Economic Modelling, Elsevier, vol. 54(C), pages 218-234.
    8. Prabhas Kumar Rath, 2023. "Nexus Between Indian Financial Markets and Macro-economic Shocks: A VAR Approach," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(1), pages 131-164, March.
    9. Deniz Erer, 2023. "The Impact of News Related Covid-19 on Exchange Rate Volatility:A New Evidence From Generalized Autoregressive Score Model," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 0(38), pages 105-126, June.
    10. Imane El Ouadghiri & Valerie Mignon & Nicolas Boitout, 2014. "On the impact of macroeconomic news surprises on Treasury-bond yields," EconomiX Working Papers 2014-20, University of Paris Nanterre, EconomiX.
    11. Laakkonen, Helinä, 2007. "Exchange rate volatility, macro announcements and the choice of intraday sasonality filtering method," Bank of Finland Research Discussion Papers 23/2007, Bank of Finland.
    12. Dreger, Christian & Kholodilin, Konstantin A. & Ulbricht, Dirk & Fidrmuc, Jarko, 2016. "Between the Hammer and the Anvil: The Impact of Economic Sanctions and Oil Prices on Russia’s Ruble," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 44(2), pages 295-308.
    13. Laakkonen, Helinä & Lanne, Markku, 2009. "The Relevance of Accuracy for the Impact of Macroeconomic News on Volatility," MPRA Paper 23718, University Library of Munich, Germany.
    14. Balázs Égert, 2010. "The Impact of Monetary and Commodity Fundamentals, Macro News and Central Bank Communication on the Exchange Rate: Evidence from South Africa," Open Economies Review, Springer, vol. 21(5), pages 655-677, November.
    15. Mensi, Walid & Hammoudeh, Shawkat & Yoon, Seong-Min, 2014. "Structural breaks and long memory in modeling and forecasting volatility of foreign exchange markets of oil exporters: The importance of scheduled and unscheduled news announcements," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 101-119.
    16. Imane El Ouadghiri & Valérie Mignon & Nicolas Boitout, 2016. "On the impact of macroeconomic news surprises on Treasury-bond returns," Annals of Finance, Springer, vol. 12(1), pages 29-53, February.
    17. Christian Dreger & Jarko Fidrmuc & Konstantin Kholodilin & Dirk Ulbricht, 2015. "The Ruble between the Hammer and the Anvil: Oil Prices and Economic Sanctions," Discussion Papers of DIW Berlin 1488, DIW Berlin, German Institute for Economic Research.
    18. Dominguez, Kathryn M.E. & Panthaki, Freyan, 2006. "What defines `news' in foreign exchange markets?," Journal of International Money and Finance, Elsevier, vol. 25(1), pages 168-198, February.
    19. Christian Dreger & Jarko Fidrmuc & Konstantin Kholodilin & Dirk Ulbricht, 2015. "The Ruble between the Hammer and the Anvil: Oil Prices and Economic Sanctions," Discussion Papers of DIW Berlin 1488, DIW Berlin, German Institute for Economic Research.
    20. Cristi Spulbar & Mihai Nitoi, 2012. "The Impact Of Political And Economic News On The Euro/Ron Exchange Rate: A Garch Approach," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 4, pages 52-58, December.
    21. Marshall, Andrew & Musayev, Taleh & Pinto, Helena & Tang, Leilei, 2012. "Impact of news announcements on the foreign exchange implied volatility," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 719-737.
    22. Pierre L. Siklos & Martin T. Bohl, 2008. "Policy words and policy deeds: the ECB and the euro," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(3), pages 247-265.
    23. Hoda SELIM, 2010. "Fear of Floating and Exchange Rate Pass-Through to Inflation in Egypt," EcoMod2010 259600151, EcoMod.
    24. Nasha Maveé & Mr. Roberto Perrelli & Mr. Axel Schimmelpfennig, 2016. "Surprise, Surprise: What Drives the Rand / U.S. Dollar Exchange Rate Volatility?," IMF Working Papers 2016/205, International Monetary Fund.

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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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