Working Paper: NBER ID: w9433
Authors: Martin D. D. Evans; Richard K. Lyons
Abstract: This paper tests whether macroeconomic news is transmitted to exchange rates via the transactions process and if so, what share occurs via transactions versus the traditional direct channel. We identify the link between order flow and macro news using a heteroskedasticity-based approach, a la Rigobon and Sack (2002). In both daily and intra-daily data, order flow varies considerably with macro news flow. At least half of the effect of macro news on exchange rates is transmitted via order flow.
Keywords: macroeconomic news; exchange rates; order flow; transaction process
JEL Codes: F31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| macro news (E60) | exchange rates (F31) |
| macro news (E60) | order flow (C69) |
| order flow (C69) | exchange rates (F31) |