Working Paper: NBER ID: w11769
Authors: Kathryn Dominguez; Freyan Panthaki
Abstract: This paper examines whether the traditional sets of macro surprises, that most of the literature considers, are the only sorts of news that can explain exchange rate movements. We examine the intra-daily influence of a broad set of news reports, including variables which are not typically considered "fundamentals" in the context of standard models of exchange rate determination, and ask whether they too help predict exchange rate behavior. We also examine whether "news" not only impacts exchange rates directly, but also influences exchange rates via order flow (signed trade volume). Our results indicate that along with the standard fundamentals, both non-fundamental news and order flow matter, suggesting that future models of exchange rate determination ought to include all three types of explanatory variables.
Keywords: No keywords provided
JEL Codes: F31; F37; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| scheduled macroeconomic announcements (E60) | exchange rate returns (F31) |
| nonscheduled news (Z00) | exchange rate returns (F31) |
| order flow (C69) | exchange rate returns (F31) |
| market uncertainty (D84) | news impact on exchange rates (F31) |
| news (Y60) | exchange rate behavior (F31) |
| order flow mediates news and exchange rate relationship (F31) | exchange rate returns (F31) |