Macroeconomic News and Exchange Rate Volatility: Evidence of Unstable Effect

Walid Ben Omrane, Robert Welch and Xinyao Zhou

Chapter 7 in Handbook of Global Financial Markets:Transformations, Dependence, and Risk Spillovers, 2019, pp 167-198 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter examines the effects of macroeconomic news on foreign exchange return and volatility across sequential regimes. Although the stable link between macroeconomic news announcements and exchange rates has been well documented in previous literature, this linkage could be unstable. Using a breakpoint regression model, a broad set of macroeconomic news announcements, and high-frequency Euro/Dollar foreign data from November 1, 2004 to March 31, 2014, we find macroeconomic news has unstable effects on Eurodollar returns and volatility across estimated regimes. Most news events exhibit variations in magnitude and/or switch signs between regimes. US news causes more instability than Euro news.

Keywords: Market Integration; Risk Management; Risk Assessment; Financial Uncertainty; Volatility; Financial Markets; Financial Development; Country Risks; Sovereign Debt Markets (search for similar items in EconPapers)
JEL-codes: F37 (search for similar items in EconPapers)
Date: 2019
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