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Central bank communication and exchange rate volatility: a GARCH analysis

  • Radovan Fiser
  • Roman Horvath

We examine the effects of the Czech National Bank communication, macroeconomic news and interest rate differential on exchange rate volatility using generalized autoregressive conditional heteroscedasticity model. Our results suggest that central bank communication has a calming effect on exchange rate volatility. The timing of central bank communication seems to matter, too, as financial markets respond more to the communication before the policy meetings than after them. Next, macroeconomic news releases are found to reduce exchange rate volatility, while interest rate differential seems to increase it.

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Article provided by Taylor & Francis Journals in its journal Macroeconomics and Finance in Emerging Market Economies.

Volume (Year): 3 (2010)
Issue (Month): 1 ()
Pages: 25-31

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Handle: RePEc:taf:macfem:v:3:y:2010:i:1:p:25-31
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  1. Evans, Martin D.D. & Lyons, Richard K., 2005. "Do currency markets absorb news quickly?," Journal of International Money and Finance, Elsevier, vol. 24(2), pages 197-217, March.
  2. Kim, Suk-Joong & McKenzie, Michael D. & Faff, Robert W., 2004. "Macroeconomic news announcements and the role of expectations: evidence for US bond, stock and foreign exchange markets," Journal of Multinational Financial Management, Elsevier, vol. 14(3), pages 217-232, July.
  3. Blinder, Alan S. & Ehrmann, Michael & de Haan, Jakob & Fratzscher, Marcel & Jansen, David-Jan, 2008. "Central Bank communication and monetary policy: a survey of theory and evidence," Working Paper Series 0898, European Central Bank.
  4. Ehrmann, Michael & Fratzscher, Marcel, 2005. "The timing of central bank communication," Working Paper Series 0565, European Central Bank.
  5. Kocenda, Evzen & Valachy, Juraj, 2006. "Exchange rate volatility and regime change: A Visegrad comparison," Journal of Comparative Economics, Elsevier, vol. 34(4), pages 727-753, December.
  6. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  7. Jansen, David-Jan & De Haan, Jakob, 2005. "Talking heads: the effects of ECB statements on the euro-dollar exchange rate," Journal of International Money and Finance, Elsevier, vol. 24(2), pages 343-361, March.
  8. Ales Bulir & Katerina Smídková, 2008. "Striving to Be “Clearly Open†and “Crystal Clearâ€: Monetary Policy Communication of the CNB," IMF Working Papers 08/84, International Monetary Fund.
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