Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/82084 
Year of Publication: 
2003
Series/Report no.: 
EPRU Working Paper Series No. 2003-18
Publisher: 
University of Copenhagen, Economic Policy Research Unit (EPRU), Copenhagen
Abstract: 
This paper is the first to utilize the informational content embodied in Federal funds futures contracts for extracting day-to-day changes in expectations of future US monetary policy, in the context of a study of day-to-day exchange rate changes. We analyze more than 12 years of daily exchange rate data and show that continuous day-to-day changes in expectations of future US monetary policy has a significant and systematic impact on day-to-day changes in exchange rates. Our results imply that monetary policy matters for daily exchange rate determination in more ways than merely through infrequent, actual policy changes. Furthermore, when focusing on the actual monetary policy changes, the paper confirms that only the unexpected element of a policy change impacts exchange rates. The presented findings are generally consistent with the notion that exchange rates are forward-looking asset prices.
Subjects: 
expectations
monetary policy
federal funds futures
exchange rates
JEL: 
E52
F31
G14
Document Type: 
Working Paper

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