The news effects on exchange rate returns and volatility: Evidence from Pakistan

Munazza Jabeen, Abdul Rashid and Hajra Ihsan

International Journal of Finance & Economics, 2022, vol. 27, issue 1, 745-769

Abstract: This article explores the effects of macroeconomic news on Pak rupee's exchange rates. For this purpose, it employs GARCH models by using real‐time data on macroeconomic news and exchange rates. The results exhibit that daily Pak rupee exchange rates dynamics are linked to macroeconomic fundamentals. Both foreign and domestic macroeconomic news announcements significantly affect Pak rupee exchange rates. The exchange rate returns and volatility of Pak rupee immediately adjust to most of the foreign and domestic macroeconomic news. Most of the US and PAK domestic macroeconomic news immediately affect PKR/USD exchange rates as compared to the effect of other foreign and domestic macroeconomic news on other Pak rupee exchange rates. Finally, the article shows that Pak rupee exchange rate returns and their volatilities are responsive to foreign and domestic macroeconomic news announcements with different magnitudes for all the currency pairs. These findings suggest that the behaviour of PAK rupee exchange rate appears to be consistent with the models of exchange rate determination and the monetary authority's reaction function.

Date: 2022
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