The impact of macro news and central bank communication on emerging European forex markets

No 2012-20, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: We analyze the impact of macroeconomic news and central bank communication on the exchange rates of three Central and Eastern European (CEE) currencies against the euro. In doing so, we first estimate standard and extended versions of the monetary model to capture deviations from the long-term monetary equilibrium. In the second stage, we employ a high-frequency GARCH model that includes accurately identified macroeconomic news, central bank communication and emerging market risk and allows for non-linear behavior as regards the deviation from equilibrium. Surprisingly, there is little support for non-linearity in the data. During the pre-crisis period (2004–2007) the major CEE currencies generally respond to macroeconomic news in an intuitive manner that corresponds to exchange rate-related theories. During the crisis (2008–2009), the responsiveness breaks down and the currencies react to news on the key economic indicator (real GDP growth). There is a lack of responsiveness to central bank communications during the pre-crisis period but all currencies react to central bank verbal interventions during the crisis. Our results show that the CEE currencies react to both macroeconomic news and central bank communications but this responsiveness differs during the pre-crisis and crisis periods. Detailed responses vary across the currencies and we conjecture that the exchange rate regime and the extent to which particular currencies are traded on the international forex market are potential explanations behind these differences.

Keywords: exchange rate; macroeconomic news; central bank communication; monetary model; Central Europe; European Union (search for similar items in EconPapers)
JEL-codes: E31 F31 O11 P17 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2012
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The impact of macro news and central bank communication on emerging European forex markets (2014)
Working Paper: The impact of macro news and central bank communication on emerging European forex markets (2014)
Working Paper: The Impact of Macro News and Central Bank Communication on Emerging European Forex Markets (2013)
Working Paper: The impact of macro news and central bank communication on emerging European forex markets (2012)
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