Business Economics and Public Policy Papers

Document Type

Journal Article

Date of this Version

5-2007

Publication Source

Journal of Monetary Economics

Volume

54

Issue

4

Start Page

1051

Last Page

1068

DOI

10.1016/j.jmoneco.2006.05.015

Abstract

The joint movements of exchange rates and U.S. and foreign term structures over short-time windows around macro announcements are studied using a 14-year span of high-frequency data. In order to evaluate whether the joint effects can be reconciled with conventional theory, the implications of these joint movements for changes in expected future exchange rates and changes in foreign exchange risk premia are deduced. For several real macro announcements, a stronger than expected release appreciates the dollar today, and must either (i) lower the risk premium for holding foreign currency rather than dollars, or (ii) imply net expected dollar depreciation over the ensuing decade.

Keywords

data releases, exchange rates, uncovered interest parity, overshooting

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Date Posted: 27 November 2017

This document has been peer reviewed.