The Impact of Macroeconomic News on Exchange Rate Volatility

Bank of Finland Discussion Paper No. 24/2004

46 Pages Posted: 9 Jan 2005

Date Written: July 12, 2004


This study investigates the impact of new information on the volatility of exchange rates. The impact of scheduled US and European macroeconomic news on the volatility of USD/EUR 5-minute returns was tested by using the Flexible Fourier Form method. The results were consistent with earlier studies. Macroeconomic news increased volatility significantly, and news on the United States was the most important. The much-tested hypothesis of bad news having a greater impact on volatility was re-confirmed in this study. The announcements were also divided into two categories, the first containing the news that gave conflicting information on the state of the economy (bad and good news at the same time) and the other containing the news that was consistent (where either good or bad news was announced). Conflicting news was found to increase volatility significantly more than consistent news. The impact of 'no-surprise' news was also tested. Even news the forecast of which was equal to an announcement seemed to increase volatility.

Keywords: Exchange rates, microstructure theory, volatility, news

JEL Classification: G14, C14, C12, C22

Suggested Citation

Laakkonen, Helinä, The Impact of Macroeconomic News on Exchange Rate Volatility (July 12, 2004). Bank of Finland Discussion Paper No. 24/2004. Available at SSRN: or

Helinä Laakkonen (Contact Author)

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101

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