|
EconStor >
ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/26658
|
| | |
| Title: | | Bank of England interest rate announcements and the foreign exchange market  |
| Authors: | | Melvin, Michael Saborowski, Christian Sager, Michael Taylor, Mark P. |
| Issue Date: | | 2009 |
| Series/Report no.: | | CESifo working paper 2613 |
| Abstract: | | Since 1997, the Bank of England Monetary Policy Committee (MPC) has met monthly to set the UK policy interest rate. We examine evidence of systematic patterns in exchange rate movements on MPC days over the first decade of operation of the MPC. Daily data reveal significant differences in volatility on the last of three meeting days when the interest rate announcement surprises the market. Intraday, five-minute return data are then used to provide a microscopic view. We use a Markov-switching framework that incorporates endogenous transition probabilities, which allows for an interesting alternative characterization of macroeconomic news effects on the foreign exchange market. We find evidence for non-linear regime switching between a high-volatility, informed-trading state and a low-volatility, liquidity-trading state. MPC surprise announcements are shown significantly to affect the probability that the market enters and remains within the informed trading regime, with some limited market positioning just prior to the announcement. |
| Subjects: | | foreign exchange market microstructure monetary policy announcements Markov switching endogenous probabilities |
| JEL: | | E42 E44 F31 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
|
| |
| | |
Download bibliographical data as:
BibTeX
|
| |
Share on:http://hdl.handle.net/10419/26658
|
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.
|