Macroeconomic News and the DM/$ Exchange Rate

58 Pages Posted: 30 Jul 2012

See all articles by Aris Protopapadakis

Aris Protopapadakis

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

Date Written: June 28, 2012

Abstract

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.

JEL Classification: E52, F31, F33, F41, G12

Suggested Citation

Protopapadakis, Aris and Flannery, Mark Jeffrey, Macroeconomic News and the DM/$ Exchange Rate (June 28, 2012). Marshall School of Business Working Paper No. FBE 05.12. Available at SSRN: https://ssrn.com/abstract=2116608 or http://dx.doi.org/10.2139/ssrn.2116608

Aris Protopapadakis (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-6537 (Phone)
213-740-6650 (Fax)

Mark Jeffrey Flannery

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-3184 (Phone)
352-392-0103 (Fax)

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