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The Effects of Macroeconomic News on High Frequency Exchange Rate Behavior

Published online by Cambridge University Press:  06 April 2009

Alvaro Almeida ,
Charles Goodhart  and
Richard Payne
Alvaro Almeida
Affiliation:
Financial Markets Group, London School of Economics and CEMPRE, Faculdade de Economia do Porto
Charles Goodhart
Affiliation:
Department of Economics and Financial Markets Group, London School of Economics
Richard Payne
Affiliation:
Department of Accounting and Finance and Financial Markets Group, London School of Economics, Houghton Street, London WC2A 2AE, U.K.
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Abstract

This paper studies the high frequency reaction of the DEM/USD exchange rate to publicly announced macroeconomic information emanating from Germany and the U.S. By using data sampled at a five-minute frequency, we are able to identify significant impacts of most announcements on the exchange rate change in the 15 minutes post-announcement, although the significance of these effects decreases rapidly as the interval over which the post-announcement change in exchange rates is increased. The direction of the exchange rate response conforms, in general, with a reaction function interpretation whereby reactions to macroeconomic news are driven by the likely operations of monetary authorities in domestic money markets. Further, we detect influences of German monetary policy decisions on the reaction of the exchange rate, and also differences between U.S. and German announcements in the exchange rate reaction time pattern.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 33 , Issue 3 , September 1998 , pp. 383 - 408
Copyright
Copyright © School of Business Administration, University of Washington 1998

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