Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82038
Authors: 
Fatum, Rasmus
Scholnick, Barry
Year of Publication: 
2005
Series/Report no.: 
EPRU Working Paper Series 2005-14
Abstract: 
This paper shows that exchange rates respond to only the surprise component of an actual US monetary policy change and that failure to disentangle the surprise component from the actual monetary policy change can lead to an underestimation of the impact of monetary policy, or even to a false acceptance of the hypothesis that monetary policy has no impact on exchange rates. This finding implies that there is a need for reexamining the empirical analyses of asset price responses to macro news that do not isolate the unexpected component of news from the expected element. In addition, we add to the debate on how quickly exchange rates respond to news by showing that the exchange rates under study absorb monetary policy surprises within the same day as the news are announced.
Subjects: 
expectations
monetary policy
federal funds futures
exchange rates
JEL: 
E52
F31
G14
Document Type: 
Working Paper

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