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The Impact of Monetary Policy on the Exchange Rate: A Study Using Intraday Data

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  • Jonathan Kearns

    (Reserve Bank of Australia)

  • Phil Manners

    (Reserve Bank of Australia)

Abstract

We investigate the impact of monetary policy on the exchange rate using an event study with intraday data for four countries. Carefully selecting the sample periods ensures that the policy change is exogenous to the exchange rate. An unanticipated tightening of 25 basis points leads to a rapid appreciation of around 0.35 percent. We also show that the impact depends on how the surprise affects expectations of future monetary policy. If expectations of future policy are revised by the full amount of the surprise, then the impact on the exchange rate is larger (0.4 percent) than if the surprise only brings forward an anticipated change in policy (0.2 percent).

Suggested Citation

  • Jonathan Kearns & Phil Manners, 2006. "The Impact of Monetary Policy on the Exchange Rate: A Study Using Intraday Data," International Journal of Central Banking, International Journal of Central Banking, vol. 2(4), December.
    • Handle: RePEc:ijc:ijcjou:y:2006:q:4:a:6
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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