Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212027 
Year of Publication: 
2006
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 2/2006
Publisher: 
Bank of Finland, Helsinki
Abstract: 
This paper examines the role of the ECB communication activities on daily Eurodollar exchange rate and interest rates.We estimate the relationship between monetary policy and the exchange rate using a technique that explicitly recognises the joint determination of both the levels and volatilities of these variables.We also consider more traditional estimation strategies as a test of the robustness of our main results.We introduce a new indicator of ECB communications policies that focuses on what the ECB says about the future economic outlook for the euro area along five different economic dimensions.The impact of ECB communications policies is more apparent in the time series framework than in the heteroskedasticity estimator approach.Previous studies that conclude that news effects are significant at the daily frequency may have reached such a conclusion because the measurement of news was too highly aggregated.The endogeneity of the exchange rate - interest rate relationship is more apparent when the proxy for monetary policy is the euro area - US differential than when any other proxy for monetary policy is employed.Finally, interest rate changes generally have a much larger impact on exchange rate movements, and their volatility, than do ECB verbal pronouncements.
Subjects: 
communication policy
exchange rates
interest rates
volatility
JEL: 
F3
E5
E6
Persistent Identifier of the first edition: 
ISBN: 
952-462-258-0
Document Type: 
Working Paper

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