Do Exchange Rates Respond to Day-to-Day Changes in Monetary Policy Expectations? Evidence from the Federal Funds Futures Market

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

No 03-18, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: This paper is the first to utilize the informational content embodied in Federal funds futures contracts for extracting day-to-day changes in expectations of future US monetary policy, in the context of a study of day-to-day exchange rate changes. We analyze more than 12 years of daily exchange rate data and show that continuous day-to-day changes in expectations of future US monetary policy has a significant and systematic impact on day-to-day changes in exchange rates. Our results imply that monetary policy matters for daily exchange rate determination in more ways than merely through infrequent, actual policy changes. Furthermore, when focusing on the actual monetary policy changes, the paper confirms that only the unexpected element of a policy change impacts exchange rates. The presented findings are generally consistent with the notion that exchange rates are forward-looking asset prices.

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: 32 pages
Date: 2003-05, Revised 2003-08
New Economics Papers: this item is included in nep-cba, nep-cfn, nep-ifn and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Do Exchange Rates Respond to Day-to-Day Changes in Monetary Policy Expectations? Evidence from the Federal Funds Futures Market (2003)
Working Paper: Do Exchange Rates Respond to Day-to-Day Changes in Monetary Policy Expectations? Evidence from the Federal Funds Futures Market (2003)
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