What's News in Exchange Rate Dynamics: A DSGE Approach
23 Pages Posted: 20 Apr 2017
Date Written: April 26, 2015
This paper examines the medium and long-term impacts of economic news on exchange rate movements. We extend a standard new open economy macroeconomics model by allowing anticipated (news) shocks in purchasing power parity and real interest rates, and perform a structural Bayesian estimation. Using 20 years of quarterly data from the US and the euro area, we find that anticipated shocks account for more than 40 percent of exchange rate fluctuations.
Keywords: Exchange Rate, DSGE, News
JEL Classification: F31, F37, F41
Suggested Citation: Suggested Citation