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News from the U.S. and Japan: which moves the yen/dollar exchange rate?

  • Takatoshi Ito
  • V. Vance Roley

Intra-daily movements in the yen/dollar exchange rate were examined in four non-overlapping segments within each business day from January1980 to September 1985. The empirical results yielded several conclusions. First, most depreciation of the yen (appreciation of the dollar) from late 1982 to early 1984 occurred in the New York market. The direction of the yen was mostly neutral in the Tokyo market. Also, the volatility of the exchange rate decreased considerably in the Tokyo market. The volatility in the New York market, on the other hand, did not decrease untilvery recently. Second, market efficiency was examined in terms of the random-walk behavior of short-run movements in the yen/dollar rate. Information on the preceding segments within a day was sometimes significant in predicting the exchange rate movement in a market. Third, there is evidence of the "profit-taking" behavior, or overshooting, in that a large jump (more than 3 absolute yen) in any market tends to be reversed by a fifth of the jump during the same day in the next market. Finally,the relative effects of news from the U.S. and Japan were examined explicitly both with respect to possible major events behind large jumps andthe response of the yen/dollar rate to particular economic announcements in both countries. Over the entire sample period, news concerning the U.S. money stock had the only significant effects.

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Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number 86-02.

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Date of creation: 1986
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Handle: RePEc:fip:fedkrw:86-02
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  1. Edwards, Sebastian, 1982. "Exchange rates and `news': A multi-currency approach," Journal of International Money and Finance, Elsevier, vol. 1(1), pages 211-224, January.
  2. Roley, V. Vance, 1985. "The response of interest rates to money announcements under alternative operating procedures and reserve requirement systems," Proceedings, Federal Reserve Bank of San Francisco, issue 7, pages 127-160.
  3. Grossman, Jacob, 1981. "The "Rationality" of Money Supply Expectations and the Short-Run Response of Interest Rates to Monetary Surprises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(4), pages 409-24, November.
  4. Douglas K. Pearce & V. Vance Roley, 1984. "Stock Prices and Economic News," NBER Working Papers 1296, National Bureau of Economic Research, Inc.
  5. Frankel, Jeffrey A & Hardouvelis, Gikas A, 1985. "Commodity Prices, Money Surprises and Fed Credibility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 425-38, November.
  6. Edwards, Sebastian, 1984. "Exchange rates and `news': Reply," Journal of International Money and Finance, Elsevier, vol. 3(1), pages 123-126, April.
  7. V. Vance Roley, 1982. "The Response of Short-Term Interest Rates to Weekly Money Announcements," NBER Working Papers 1001, National Bureau of Economic Research, Inc.
  8. Sebastian Edwards, 1983. "Floating Exchange Rates, Expectations and New Information," NBER Working Papers 1064, National Bureau of Economic Research, Inc.
  9. Dallas S. Batten & Daniel L. Thornton, 1983. "Discount rate changes and the foreign exchange market," Working Papers 1983-016, Federal Reserve Bank of St. Louis.
  10. Roley, V Vance, 1983. "The Response of Short-Term Interest Rates to Weekly Money Announcements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(3), pages 344-54, August.
  11. Rudiger Dornbusch, 1980. "Exchange Rate Economics: Where Do We Stand?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 143-206.
  12. Takatoshi Ito, 1984. "Use of (Time-Domain) Vector Autoregressions to Test Uncovered Interest Parity," NBER Working Papers 1493, National Bureau of Economic Research, Inc.
  13. Longworth, David, 1984. "Exchange rates and `news': A comment," Journal of International Money and Finance, Elsevier, vol. 3(1), pages 119-121, April.
  14. Hakkio, Craig S & Pearce, Douglas K, 1985. "The Reaction of Exchange Rates to Economic News," Economic Inquiry, Western Economic Association International, vol. 23(4), pages 621-36, October.
  15. Mussa, Michael, 1979. "Empirical regularities in the behavior of exchange rates and theories of the foreign exchange market," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 11(1), pages 9-57, January.
  16. Takatoshi Ito, 1983. "Capital Controls and Covered Interest Parity," NBER Working Papers 1187, National Bureau of Economic Research, Inc.
  17. V. Vance Roley, 1982. "Weekly money supply announcements and the volatility of short-term interest rates," Economic Review, Federal Reserve Bank of Kansas City, issue Apr, pages 3-15.
  18. Cornell, Bradford, 1983. "The Money Supply Announcements Puzzle: Review and Interpretation," American Economic Review, American Economic Association, vol. 73(4), pages 644-57, September.
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