Macroeconomic News and the DM/$ Exchange Rate
University of Southern California - Marshall School of Business - Finance and Business Economics Department
Mark J. Flannery
University of Florida - Department of Finance, Insurance and Real Estate
June 28, 2012
Marshall School of Business Working Paper No. FBE 05.12
Empirical confirmation that the effect of macroeconomic fundamentals on exchange rates is economically important has been scarce. This paper employs a general GARCH specification with asymmetric responses to investigate the effect of 35 U.S. and German macroeconomic news announcements on the daily DM/$ exchange rate over the 1980-1998 period. We conclude that FX rates are strongly connected to real and nominal sector developments in both countries, and that real sector announcements influence the exchange rate more strongly than money or inflation announcements. We find that surprisingly high real growth appreciates the exchange rate and raises yields.
Number of Pages in PDF File: 58
JEL Classification: E52, F31, F33, F41, G12working papers series
Date posted: July 30, 2012
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