The overall aim of this paper is first to review existing papers and based on this to conduct own research in the field of the effect of macroeconomic news in general and, more specific,
ECB communication on exchange rates.
Exchange rate communication is a special form of macroeconomic news that is issued by central banks. Existing research on the effect of this communication has lead to often diverging result that illustrate the high intensity and dynamics of the current academic debate with regard to this matter. On one hand evidence of a relatively high impact on the mean and volatility of currency markets is found (e.g. by Fratzscher (2004)) whereas others (e.g. Jansen, de Haan (2005)) do not chronicle statistically significant and persistent results. The difficulty of understanding the response of currency markets becomes even harder when the significance of the respective context of news e.g. day of the week effect is considered or asymmetric responses are taken into account.
Among the group of central banks especially the European Central Bank has attracted high attention in academic research. Preceding studies generally create dummy variables to measure ECB communication. These variables are then by different methods regressed against the exchange rate or other financial assets in order to find explanatory relationships. This paper follows this approach by using the dummy variable of Rosa, Verga (2006).
Ultimately we arrive at three major findings using our dataset. (a) Communication and interest changes by central banks are interpreted differently by currency markets: While
communication that suggests raising interest rates seems to be an alarming warning signal with regard to possible inflation, interest rate increases see to be interpreted as attempts to mitigate this danger. (b) There are indicators that the exchange rate reacts more slowly to news coming from the U.S. (c) Based not on high frequency but on daily data we merely arrive at results that do not allow us to reject the null hypothesis that exchange rate communication actually does not have a significant impact on exchange rate returns.
Table of Content
List of figures and tables
1. Introduction
2. How do markets react to macro news?
2.1. What is news and how does it affect the mean and volatility of exchange rates?
2.2. Velocity of news absorption
2.3. Context of news: What impact does it have?
2.4. Asymmetric reaction to news
3. Central Banks
3.1. Why are Central Banks and especially the ECB of special academic interest?
3.2. How can we classify the existing research in the ECB-field?
3.3. What can central banks achieve by communication?
4. Empirical Evidence for exchange rate communication efficiency
4.1. Which existing papers have similar empirical focus?
4.2. How do existing papers measure communication?
4.3. What econometric methodology has been used?
4.4. What effects could the existing research discover?
4.5. What do those results mean for the actions of the ECB?
5. Own empirical findings
5.1. Data sources
5.2. Which is the most appropriate regression?
5.3. Why could lag specification be helpful?
5.4. What is the economic reasoning behind the sign and the size of the coefficients?
5.5 Which results does further testing yield?
5.6 Interpretation of Results / Implications for ECB
6. Conclusion
7. References
8. Tables
9. Graphs
-
Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X. -
Upload your own papers! Earn money and win an iPhone X.