Monetary Policy News and Exchange Rate Responses: Do Only Surprises Matter?

Rasmus Fatum and Barry Scholnick
Additional contact information
Barry Scholnick: School of Business, University of Alberta

No 05-14, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: This paper shows that exchange rates respond to only the surprise component of an actual US monetary policy change and that failure to disentangle the surprise component from the actual monetary policy change can lead to an underestimation of the impact of monetary policy, or even to a false acceptance of the hypothesis that monetary policy has no impact on exchange rates. This finding implies that there is a need for reexamining the empirical analyses of asset price responses to macro news that do not isolate the unexpected component of news from the expected element. In addition, we add to the debate on how quickly exchange rates respond to news by showing that the exchange rates under study absorb monetary policy surprises within the same day as the news are announced.

Keywords: expectations; monetary policy; federal funds futures; exchange rates (search for similar items in EconPapers)
JEL-codes: E52 F31 G14 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2005-11
New Economics Papers: this item is included in nep-cba, nep-fin, nep-fmk, nep-ifn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Monetary policy news and exchange rate responses: Do only surprises matter? (2008)
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