Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/306349 
Year of Publication: 
2024
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 11/2024
Publisher: 
Bank of Finland, Helsinki
Abstract: 
Leveraging Wall Street Journal news, recent developments in textual analysis, and generative AI, we estimate a narrative decomposition of the dollar exchange rate. Our findings shed light on the connection between economic fundamentals and the exchange rate, as well as on its absence. From the late 1970s onwards, we identify six distinct narratives that explain changes in the exchange rate, each largely non-overlapping. U.S. fiscal and monetary policies play a significant role in the early part of the sample, while financial market news becomes more dominant in the second half. Notably, news on technological change predicts the exchange rate throughout the entire sample period. Finally, using text-augmented regressions, we find evidence that media coverage explains the unstable relationship between exchange rates and macroeconomic indicators.
Subjects: 
Exchange rates
big data
textual analysis
macroeconomic news
Wall Street Journal
narrative retrieval
scapegoat
JEL: 
C3
C5
F3
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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