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The High-Frequency Response of the EUR-US Dollar Exchange Rate to ECB Monetary Policy Announcements

Author

Listed:
  • Christian Conrad
  • Michael J. Lamla

Abstract

We investigate the impact of the European Central Bank's monetary policy announcements on the level and volatility of the EUR-US Dollar exchange rate employing an AR-FIGARCH specification. Using high-frequency data we estimate the individual and complementary effects of the release of the interest rate decision, the ECB's introductory statement and the question and answer session. Surprise interest rate changes explain the movements in the exchange rate immediately after press release. During the introductory statement, communication with respect to future price developments is most relevant and has two important functions: (i) it explains the previously announced decision and (ii) it serves as a guide for the future path of monetary policy.

Suggested Citation

  • Christian Conrad & Michael J. Lamla, 2007. "The High-Frequency Response of the EUR-US Dollar Exchange Rate to ECB Monetary Policy Announcements," KOF Working papers 07-174, KOF Swiss Economic Institute, ETH Zurich.
  • Handle: RePEc:kof:wpskof:07-174
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    File URL: http://dx.doi.org/10.3929/ethz-a-005476100
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    Cited by:

    1. Jakob de Haan & David-Jan Jansen, 2009. "The communication policy of the European Central Bank: An overview of the first decade," DNB Working Papers 212, Netherlands Central Bank, Research Department.
    2. CHIA-LIN CHANG & MICHAEL McALEER & ROENGCHAI TANSUCHAT, 2012. "Modelling Long Memory Volatility In Agricultural Commodity Futures Returns," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 7(02), pages 1-27.
    3. Conrad, Christian & Karanasos, Menelaos & Zeng, Ning, 2011. "Multivariate fractionally integrated APARCH modeling of stock market volatility: A multi-country study," Journal of Empirical Finance, Elsevier, vol. 18(1), pages 147-159, January.
    4. Michael J. Lamla & Christian Conrad, 2007. "An den Lippen der EZB – Der KOF Monetary Policy Communicator," KOF Analysen, KOF Swiss Economic Institute, ETH Zurich, vol. 1(4), pages 33-45, March.
    5. Jan-Egbert Sturm & Jakob Haan, 2011. "Does central bank communication really lead to better forecasts of policy decisions? New evidence based on a Taylor rule model for the ECB," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(1), pages 41-58, April.
    6. Martin Cihak & Katerina Smídková & Ales Bulir, 2008. "Writing Clearly; ECB’s Monetary Policy Communication," IMF Working Papers 08/252, International Monetary Fund.
    7. Neuenkirch, Matthias, 2013. "Monetary policy transmission in vector autoregressions: A new approach using central bank communication," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4278-4285.
    8. Jakob Haan, 2008. "The effect of ECB communication on interest rates: An assessment," The Review of International Organizations, Springer, vol. 3(4), pages 375-398, December.

    More about this item

    Keywords

    European Central Bank; Monetary policy announcements; Communication; Exchange rate; Long memory GARCH processes;

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