دانلود مقاله ISI انگلیسی شماره 26383
عنوان فارسی مقاله

سیاست های پولی و اخبار پاسخ های نرخ ارز: آیا فقط شگفتی مهم است؟

کد مقاله سال انتشار مقاله انگلیسی ترجمه فارسی تعداد کلمات
26383 2008 11 صفحه PDF سفارش دهید محاسبه نشده
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عنوان انگلیسی
Monetary policy news and exchange rate responses: Do only surprises matter?
منبع

Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)

Journal : Journal of Banking & Finance, Volume 32, Issue 6, June 2008, Pages 1076–1086

کلمات کلیدی
انتظارات - سیاست های پولی - فدرال وجوه معاملات سلف - نرخ ارز -
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چکیده انگلیسی

We use data from the Federal Funds Futures market to show that exchange rates respond to only the surprise component of an actual US monetary policy change and we illustrate 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 rejection of the hypothesis that monetary policy impacts exchange rates. Unlike the recent contributions to the literature on exchange rates and monetary policy news, our testing method avoids the imposition of assumptions regarding exchange rate market efficiency. We also 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

مقدمه انگلیسی

This paper uses Federal Funds Futures market data to investigate whether exchange rates respond to the surprise component of actual monetary policy changes and also whether exchange rates respond to the expected component of such policy changes. Our testing method allows us to avoid the imposition of assumptions regarding market efficiency and, therefore, we do not have to apriori disregard the expected component of monetary policy changes. We show that exchange rates respond to only the surprise component and we illustrate that failure to disentangle the surprise component from the monetary policy news announcement leads to an underestimation of the impact of the news, or even to a false rejection of the hypothesis that monetary policy impacts exchange rates. We also examine whether the exchange rate price adjustment associated with the monetary policy change is instantaneous or delayed. Recent empirical contributions by Andersen et al., 2003, Chaboud et al., 2004, Evans and Lyons, 2005, Faust et al., 2003 and Simpson et al., 2005 find that exchange rates react to monetary policy surprises, i.e. to the unexpected component of a change in the monetary policy stance.1 A common characteristic of these studies, however, is that they focus their analysis of news effects on only one type of variable, namely the surprise component of a news announcement.2 As such, these studies follow earlier work by, for example, Almeida et al. (1998). Almeida et al. (1998, p. 387) note that “market efficiency would dictate that the expected portion of an announcement should have no impact on the exchange rate” and, based on the assumption of market efficiency, apriori disregard the expected component of news in their analysis of exchange rate responses to macroeconomic announcements.3 In other words, the recent literature on exchange rates and monetary policy news does not consider what can be described as an unrestricted dual test of whether exchange rates respond to the unexpected component of news and whether exchange rates respond to the expected component of news. Instead, the existing contributions impose, implicitly or explicitly, an additional assumption of exchange rate market efficiency in order to justify disregarding the expected component of news and, as a result, consider only what can be described as a restricted single test of whether exchange rates respond to the unexpected component of news. Rather than focusing on only the surprise component of news which, by construction, is a simple linear function of the actual announcement and the expected component, our analysis makes use of all three components (the surprise component, the expected component, and the actual announcement) separately.4 In doing so, we are able to carry out the unrestricted dual test and, as a result, we are able to truly address whether exchange rates respond to only the surprise component of news – without imposing unnecessary apriori assumptions regarding market efficiency. 5 An additional advantage of our testing approach is that it makes it possible to compare the exchange rate response to news when news are measured properly (i.e. when separating the surprise component from the actual announcement) to the exchange rate response to news when news are measured improperly (i.e. when measuring news as simply the news announcement itself), thereby allowing us to illustrate the importance of focusing on the surprise component of news. This facilitates a comparison of our findings to the findings of studies that do not distinguish between announcement and surprise component. 6 Both the predictions of standard asset-pricing theory and the survey responses from currency traders reported in Cheung and Chinn (2001) suggest that the effects from macro news announcements are quickly absorbed in prices. Nevertheless, there is no consensus in the empirical literature on exchange rates and macro news in regards to how fast the absorption process really is. For example, Andersen et al. (2003) find that exchange rates generally respond within 5 min of the news announcement (characterized by a jump immediately following the announcement and little movement thereafter) while Faust and Rogers, 2003 and Faust et al., 2003 in the context of identified (recursively or not) VAR models show confidence intervals consistent with exchange rate responses occurring anywhere from instantaneously to 5 years after the news announcement. Similarly, Evans and Lyons (2005) find delayed exchange rate responses several days after the news occurred while Simpson et al. (2005) show that exchange rates respond to news within the same day as the news are announced. Our analysis also adds to the literature on how quickly exchange rates respond to monetary policy news. We focus our investigation on the 42 US monetary policy changes that occurred during the 1989 to 2000 time-period, i.e. our sample of monetary policy change events consists of days when the Fed funds rate target was changed and it is identical to that of Kuttner (2001). We follow Kuttner, 2001 and Faust et al., 2003 and use data on Fed funds futures for isolating the surprise component of each of these actual policy changes.7,8 In particular, we use the decomposition of the actual change into an expected and a surprise (unexpected) component, as displayed in Kuttner (2001, p. 532). Furthermore, we use an event study approach and incorporate several control variables that capture the surprise element of US macroeconomic news and policy developments. While Kuttner (2001) estimates the impact of monetary policy events on interest rates, we assess the impact of monetary policy events on exchange rates. By following closely the event study methodology and analyzing the exact same sample of events as Kuttner (2001), we are able to directly compare the impact of monetary policy changes on interest rates to the impact of monetary policy changes on exchange rates. The period under study is characterized as a floating exchange rate regime, thus there is no reason to believe that the Fed changes US monetary policy in response to same-day or short-term exchange rate movements. Based on this institutional factor, it seems reasonable to assume that exchange rates are reacting to monetary policy changes, rather than the reverse. Consistent with standard asset-pricing theory applied to exchange rates we find that the expected component of a monetary policy change has no impact on the exchange rate while the unexpected component of a tightening (loosening) of US monetary policy is associated with a same-day appreciation (depreciation) of the USD.9 This is consistent with Kuttner (2001) who finds the interest rate response to anticipated Fed Funds Target rate changes to be small, and the interest rate response to unanticipated changes to be large and highly significant.10 Moreover, when comparing the exchange rate response to news with news decomposed into a surprise and an expected component to the exchange rate response to news with news measured simply by the actual announcement itself (which is the sum of the surprise and the expected component), we show how 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 is an important result as it confirms the need for reexamining past empirical work of asset price responses to macro news whenever such work merely equate macro announcement with macro innovation without explicitly taking into account the importance of expectations. Specifically, this result may suggest a possible explanation for why our findings appear at odds with the findings presented in two well-known studies by, respectively, Eichenbaum and Evans, 1995 and Lewis, 1995. These studies do not distinguish between news announcement and surprise component and they do not find evidence in support of an immediate exchange rate response to monetary policy changes. Adding to the debate on how quickly exchange rates respond to news, we find an absence of delayed effects which strongly suggests that the exchange rates under study absorb monetary policy surprises quickly and within the same day as the news are announced. Although our study employs separate measures of the surprise, the expected component, and the news announcement itself (and, furthermore, we use a market-based measure of expectations and thus avoid relying on survey data), our findings in regards to the speed of the absorption of news are, nevertheless, consistent with the findings presented in Andersen et al., 2003 and Simpson et al., 2005. However, our evidence in favor of a quick absorption process is at odds with the findings of Evans and Lyons (2005). The rest of the paper is organized as follows. Section 2 briefly discusses the data and the Fed funds futures market. Section 3 presents the empirical analysis and results as well as several robustness checks. Section 4 further discusses our results in light of other contributions and concludes.

نتیجه گیری انگلیسی

We investigate whether exchange rates respond to only the surprise component of actual monetary policy changes and we assess the importance of isolating the surprise component from the actual news announcement. Furthermore, we investigate whether the exchange rate adjustment associated with monetary policy surprises is instantaneous or delayed. We focus our investigation on the 42 US monetary policy changes that occurred during the 1989–2000 time-period and we follow Kuttner (2001) in using Fed funds futures data in order to isolate the surprise component of each of these actual policy changes. In addition, we incorporate several control variables that capture the surprise element of US macroeconomic news and policy developments. Our main findings are the following: First, we show that the expected component of a monetary policy change has no impact on the exchange rate while the unexpected component of a tightening (loosening) of US monetary policy is associated with a same-day appreciation (depreciation) of the USD and, importantly, 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. Second, we show that for all the 45 displayed lead models (15 leads estimated separately for each of the three exchange rates in our sample), no coefficient estimate associated with the surprise component of monetary policy changes appears significant at the 95% significance level or higher and only one instance of significance at the 90% level occurs. This absence of delayed effects strongly suggests that the exchange rates under study absorb monetary policy surprises within the same day as the news are announced. Comparing our findings to other studies, our findings appear at odds with two related and well-known studies (neither of which focuses on expectations) of exchange rate responses to actual monetary policy innovations. Using three measures of monetary policy and a VAR approach for analyzing monthly data, Eichenbaum and Evans (1995) find that initial USD appreciation in response to a US monetary contraction is small in comparison with subsequent USD appreciation and for the GBP/USD and the JPY/USD exchange rates the initial response is insignificant. Similarly, Lewis (1995) uses a VAR approach and biweekly data and finds no significant immediate reaction to (again, three measures of) monetary policy for either the DEM/USD or the JPY/USD exchange rate. As shown in Section 3 of our study, it is necessary to disentangle the surprise component from the actual monetary policy change in order to avoid arriving at incorrect conclusions regarding exchange rate responses to monetary policy. It is indeed possible that both Eichenbaum and Evans, 1995 and Lewis, 1995 underestimate the initial impact of monetary policy due to their focus on actual monetary policy changes rather than on monetary policy surprises. Furthermore, our findings appear at odds with Evans and Lyons (2005). Investigating daily aggregates from an end-user microstructure data-set and employing VAR estimation techniques, they find that news such as monetary policy surprises induce changes in end-user trading and that these changes remain significant for several days. In other words, their findings imply that surprises matter but exchange rates do not absorb news instantaneously. Evans and Lyons (2005) suggest that a possible explanation for their finding of delayed effects is that in the case of non-financial corporations the “ultimate decision makers” are not the people who are in charge of continuous monitoring of markets. Therefore, argue Evans and Lyons (2005), these corporations will not respond to news until the time of their, say, weekly “currency strategy meeting” when the ultimate decision makers are present. If this description of an important institutional aspect of decision making structures is accurate, it would indeed induce response lags to news. However, delayed responses to news are costly and the argument offered by Evans and Lyons (2005) does not explain why corporations with less frequent strategy meetings are not over time driven out of the market by corporations with more frequent strategy meetings. Our findings appear in line with Bonser-Neal et al. (1998). They use an event study approach and the Fed funds target rate as a measure of monetary policy actions and show that exchange rates generally respond immediately to changes in US monetary policy. Their work, however, does not focus on expectations. As such, their findings may have some resemblance to ours when we analyze the GBP/USD exchange rate. Even without isolating the monetary policy surprise component we show that monetary policy changes are associated with same-day GBP/USD exchange rate changes. However, we also show that without disentangling the surprise from the actual change it is possible that the impact of a monetary policy change is underestimated. Despite our study being different due to, in particular, our use of separate measures of the surprise component, the expected component, and the news announcement itself and, furthermore, our use of a market-based measure of expectations, our findings seem consistent with the high-frequency analysis by Andersen et al. (2003) and the daily data analysis by Simpson et al. (2005). Both of these papers focus on the exchange rate responses to only the surprise component of news and both use survey data for measuring expectations. In the context of a two-stage weighted least squares time-series analysis and, subsequently, an event study analysis, Andersen et al. (2003) show that exchange rates generally respond instantaneously (characterized by a jump immediately following the announcement and little movement thereafter) to news such as Fed fund target rate changes. Simpson et al. (2005) use a VECM framework and show that, in particular, a loosening of US monetary policy is associated with a same-day depreciation of the USD. Two insights that follow from our work are that only the surprise component of an actual monetary policy change has an impact on exchange rates and that the associated exchange rate response occurs within the same day of the policy change. The most important insight, however, is 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 rejection of the hypothesis that monetary policy impacts exchange rates. This has general implications for the empirical literature on asset price responses to macro news as it confirms the need for reexamining the results from empirical analyses that do not isolate the unexpected component of news from the expected element.

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