Interpreting Market Responses to Economic Data

Patrick D'Arcy and Emily Poole
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Patrick D'Arcy: Reserve Bank of Australia
Emily Poole: Reserve Bank of Australia

RBA Bulletin (Print copy discontinued), 2010, 35-42

Abstract: This article discusses how bond, equity and foreign exchange markets have responded to the surprise component of Australian and US macroeconomic data announcements over the past decade. The bond and equity market responses are used to infer changes in market expectations for interest rates and dividend growth rates. Both interest rates and expected dividend growth rates are shown to increase by a similar magnitude in response to upside inflation and employment surprises. The estimated changes in the interest rate and expected dividend growth rate differentials between Australia and the US are also compared with the exchange rate response to data surprises. This allows an assessment of the relationship between expected economic fundamentals and the exchange rate.

Keywords: Asset price responses; economic data surprises (search for similar items in EconPapers)
Date: 2010
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