What's News in Exchange Rate Dynamics: A DSGE Approach

23 Pages Posted: 20 Apr 2017

See all articles by Kan Chen

Kan Chen

BBVA Research

Shage Zhang

Trinity University

Date Written: April 26, 2015

Abstract

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

Chen, Kan and Zhang, Shage, What's News in Exchange Rate Dynamics: A DSGE Approach (April 26, 2015). Available at SSRN: https://ssrn.com/abstract=2955348 or http://dx.doi.org/10.2139/ssrn.2955348

Kan Chen

BBVA Research ( email )

2200 Post Oak Blvd
Houston, TX 77056
United States

Shage Zhang (Contact Author)

Trinity University ( email )

San Antonio, TX 78212
United States

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