Asymmetries and state dependence: the impact of macro surprises on intraday exchange rates

Rasmus Fatum, Michael Hutchison and Thomas Wu

No 49, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: The impact of news surprises on exchange rates depends in principle upon a number of factors including the state of the economy, institutional setting and nature of the expected policy response. These characteristics may lead to state-contingent asymmetric responses to news. In this paper we investigate the possible asymmetric response of intraday exchange rates (5-minute intraday JPY/USD) to macroeconomic news announcements during a very unusual period--Japan during 1999-2006 when the money market interest rate was effectively zero. We may think of this period as a \"natural experiment\" consisting of an institutional setting when interest rates may rise but not decline, thereby constraining both endogenous policy reactions to news and private market expectations. Asymmetric responses to news, to the extent that they are important in exchange rate markets as they are in equity markets, would seem particularly likely to be evident during this period. We consider several ways asymmetric responses may be manifested and linked to macroeconomic news during the zero-interest rate period. We assess whether the intraday exchange rate responds differently depending on whether the news is emanating from Japan or the U.S.; we consider the state of the business cycle; and we distinguish between \"good\" and \"bad\" news.

JEL-codes: C22 F31 G15 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2010
New Economics Papers: this item is included in nep-cba and nep-ifn
Note: Published as: Fatum, Rasmus, Michael Hutchison and Thomas Wu (2012), "Asymmetries and State Dependence: The Impact of Macro Surprises on Intraday Exchange Rates," Journal of the Japanese and International Economies 26 (4): 542-560.
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Citations: View citations in EconPapers (7)

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Journal Article: Asymmetries and state dependence: The impact of macro surprises on intraday exchange rates (2012)
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