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on International Finance |
| By: | Gilbert, Thomas; Scotti, Chiara; Strasser, Georg; Vega, Clara |
| Abstract: | The literature documents a heterogeneous asset price response to macroeconomic news announcements: Some announcements have a strong impact on asset prices and others do not. In order to explain these differences, we estimate a novel measure of the intrinsic value of a macroeconomic announcement, which we define as the announcement's ability to nowcast GDP growth, inflation, and the Federal Funds Target Rate. Using the same nowcasting framework, we then decompose this intrinsic value into the announcement's characteristics: its relation to fundamentals, timing, and revision noise. We find that in the 1998–2013 period, a significant fraction of the variation in the announcements' price impact on the Treasury bond futures market can be explained by differences in intrinsic value. Furthermore, our novel measure of timing explains significantly more of this variation than the announcements' relation to fundamentals, reporting lag (which previous studies have used as a measure of timing), or revision noise. JEL Classification: G14, E44 |
| Keywords: | coordination role of public information, learning, macroeconomic announcements, macroeconomic forecasting, price discovery |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20161882&r=ifn |
| By: | Rogers, John H.; Scotti, Chiara; Wright, Jonathan H. |
| Abstract: | We assess the relationship between monetary policy, foreign exchange risk premia and term premia at the zero lower bound. We estimate a structural VAR including U.S. and foreign interest rates and exchange rates, and identify monetary policy shocks through a method that uses these surprises as the crucial external instrument" that achieves identification without having to use implausible short-run restrictions. This allows us to measure effects of policy shocks on expectations, and hence risk premia. U.S. monetary policy easing shocks lower domestic and foreign bond risk premia, lead to dollar depreciation and lower foreign exchange risk premia. We present some evidence that U.S. monetary policy easing surprises at the ZLB shift options-implied skewness in the direction of dollar depreciation and also reduce the demand for the liquidity of short-term U.S. Treasuries. Both of these channels should lower foreign exchange risk premia. |
| Date: | 2016–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1172&r=ifn |