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The Impact of Surprising Monetary Policy Announcements on Exchange Rate Volatility

Author

Listed:
  • Adam Albogatchiev
  • Jean-Sébastien Fontaine
  • Jabir Sandhu
  • Reginald Xie

Abstract

We identify a few Bank of Canada press releases that had the largest immediate impact on the exchange rate market. We find that volatility increases after these releases, but the effect is short-lived and mostly dissipates after the first hour, on average. Beyond the first hour, the size of the effect is similar to what we observe for other economic releases, such as those for inflation or economic growth data.

Suggested Citation

  • Adam Albogatchiev & Jean-Sébastien Fontaine & Jabir Sandhu & Reginald Xie, 2018. "The Impact of Surprising Monetary Policy Announcements on Exchange Rate Volatility," Staff Analytical Notes 2018-39, Bank of Canada.
    • Handle: RePEc:bca:bocsan:18-39
    DOI: 10.34989/san-2018-39
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    References listed on IDEAS

    as
    1. Richhild Moessner & William R. Nelson, 2008. "Central Bank Policy Rate Guidance and Financial Market Functioning," International Journal of Central Banking, International Journal of Central Banking, vol. 4(4), pages 193-226, December.
    2. Sermin Gungor & Jun Yang, 2017. "Has Liquidity in Canadian Government Bond Markets Deteriorated?," Staff Analytical Notes 17-10, Bank of Canada.
    3. Christine Fay & Toni Gravelle, 2010. "Has the Inclusion of Forward-Looking Statements in Monetary Policy Communications Made the Bank of Canada More Transparent?," Discussion Papers 10-15, Bank of Canada.
    4. Ole E. Barndorff-Nielsen, 2004. "Power and Bipower Variation with Stochastic Volatility and Jumps," Journal of Financial Econometrics, Oxford University Press, vol. 2(1), pages 1-37.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F - International Economics
    • F3 - International Economics - - International Finance
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G - Financial Economics
    • G1 - Financial Economics - - General Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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