The Effects of Macro News on Exchange Rates Volatilities: Evidence from BRICS Countries

Zhitao Lin, Ruolan Ouyang and Xuan Zhang

Emerging Markets Finance and Trade, 2020, vol. 56, issue 8, 1817-1842

Abstract: We analyze the influence of US and Chinese macro news surprises on the exchange rates volatilities of BRICS countries considering total, cyclical and trend components from 2000 to 2019. A comprehensive “actual-survey” surprises set is constructed by 31 US and 15 Chinese macro news. We further divide the sample period into three sub-samples according to the Quantitative Easing (QE) policy conducted by the US, i.e., pre-QE, QE and post-QE. Our findings suggest that the US plays a more important role on the volatilities of BRICS exchange rates in a number of macro news than China; while China has more influence power from the aspect of average magnitudes of macro news effects. In general, the impact of US macro news shows a downtrend from numbers, but China presents an opposite tendency. Meanwhile, a rising trend in magnitudes is detected in either country. The study also indicates that both US and Chinese macro news have the highest explanation power on the cyclical volatility but may hardly explain the trend volatilities. In addition, the explanation power has become more significant since the initiation of QE. Moreover, our results reveal the existence of asymmetric sign effects of macro news surprises.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:56:y:2020:i:8:p:1817-1842

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DOI: 10.1080/1540496X.2019.1680540

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