What Are The Impact Of Macroeconomic Releases On Exchange Rates
Economic releases have an important role in the foreign exchange markets. Indeed, macro announcements produce effects on both returns and volatility. Neely and Dey (2010) show that researchers have long studied the reaction of foreign exchange returns to macroeconomic announcements and by doing so, they are now able to infer how markets react to news and how order flow helps impound public and private information into prices.
Also, markets tend to have a higher reaction to announcements when the surprise is higher. The surprise also has a key role on traders. Indeed, Evans (2008) argue that dealers may revise their quotes in response to new public information that arrives via macroeconomic …show more content…
This data is analyzed closely because of its importance in identifying the rate of economic growth and inflation. This data is released on the first Friday of every month by the Bureau of Labor Statistics. For this data, we study the difference between the actual figures and the market expectations, which correspond to a survey send to analysts from all around the world. The main analysis is that an expanding non-farm payroll indicates that the economy is growing and in the case of a decreasing figure, it means the economy is slowing down.
The unemployment rate corresponds to the percentage of the total labor force that is unemployed but actively seeking employment and willing to work. The data is released the first Friday of every month by the Bureau of Labor Statistics, like the non-farm …show more content…
For each news, we had 167 observations available from January 1st, 2002 to November 24th, 2015. Given that the news is not announced the same day in the month (except the NFP and the unemployment rate), we analyzed each day on which an important news was released and if one of the news was not announced on the day we put 0 and, if a news was announced, we put the number of surprise effect (see table 2 in appendix).
4. Results, discussion and implication
In this chapter, I dispense the empirical results found by using the regression model I created for this paper and I also discuss the limits I have encounter.
4.1 Research analysis and results
The main results of this study is that our regression model, using US economic factors cannot predict exchange rates. This finding is consistent with previous works on that subject (Meese and Rogoff, 1983). Moreover, if I reduce the samples to analyze the reaction in the short-run, I find that the variables better explain changes in the exchange rate between the US dollar and the euro.
After running our regression model, the following estimated equation is