Asymmetric impact of monetary surprises on exchange rate. Issue 7 (7th February 2018)

• Record Type: Journal Article
• Authors: Ding, Liang; Yang, Qianyi
• Is Part Of: Applied economics. Volume 50:Issue 7(2018)
• Page Start: 789
• Page End: 803
• Publication Date: 2018-02-07
• Subjects: News effect -- exchange rate -- monetary surprises -- foreign exchange market; F31 -- G14; Economics -- Periodicals; 330
• DOI: 10.1080/00036846.2017.1340578
• Languages: English
• ISSNs: 0003-6846

Abstract

ABSTRACT: This paper examines the asymmetric response of exchange rate to monetary surprises. After controlling the type, direction and origin of the news as well as business cycle phase, a new asymmetry is found in the response of the exchange rate to news surprises. In specific, the US Dollar depreciates against major currencies as the response to the negative monetary surprises in the 2001 recession, while the Dollar appreciates responding to similar negative monetary surprises during the 2008 recession. The paper further explores possible causes and finds that time-varying status of the currency with higher financial returns may contribute to the new asymmetry.