Exchange rate volatility response to macroeconomic news during the global financial crisis

Abstract

JEL classification: F31 F4 G1We investigate the volatility reaction to macroeconomic news in major currency markets during the recent global financial crisis. We first present an alternative method for determining the changes in economic states by endogenously estimating crisis thresholds. Second, we assess which macroeconomic indicator gave the earliest warning signal for the upcoming contraction. Third, we investigate whether there is a systematic change in the volatility reaction of exchange rates to news during the crisis period. We find that the estimated logistic transition function based on the housing starts data exhibits the earliest warning signal compared to other indicators. Our results suggest that although volatility response to most news indicators is larger in expansion, currency market reaction to new home sales and Fed funds rate news is larger in the crisis period. We attribute this finding to the context-specific relevance of the housing and credit sectors in the evolution of the global financial crisis.

Macroeconomic news, public communications, and foreign exchange jumps around U.S. and European financial crises

“…It is also consistent with the conjecture that investors do not pay close attention to macroeconomic news figures when the relationship between these news and the economic outlook is more uncertain (Ehrmann, Osbat, Strasky, & Uusküla, ). Another possible explanation provided by Ben Omrane and Savaser () argues that increased uncertainty regarding economic conditions may shift the central bank priorities, leading to a change in the investors' perception of future monetary policy. For example, due to the Fed's financial stability mandate, investors may expect it to react less strongly to positive macroeconomic news release when risk is elevated.…”

“…More specifically, market traders and investors may rationally pay close attention to a macroeconomic news release that contains information about relevant risk factors related, for example, to the housing market and long‐term interest rates during the U.S. crisis or risk factors related to the bond market during the EU sovereign debt crisis. Considering U.S. and EU financial crises will shed light on the context‐specific relevance of macroeconomic news is highlighted in Ben Omrane and Savaser () who show evidence of news context‐specific effect on the three major currency volatilities during the U.S. financial crisis.…”

“…Details about the computation of the seasonality‐free volatility are provided in Ben Omrane and Savaser ().…”

Dampak berita makroekonomi terhadap fluktuasi nilai tukar di Indonesia

“…Pasar valuta asing digunakan dalam penelitian ini dikarenakan terdapat hipotesis yang berlaku bahwa berita makroekonomi dapat memberikan pengaruh terhadap nilai tukar. Hipotesis yang berkembang dalam pasar valuta asing adalah efek berita makroekonomi memiliki pengaruh yang cepat dalam menjelaskan pergerakan nilai tukar (Caporale, Spagnolo, & Spagnolo, 2018;Cheung, Fatum, & Yamamoto, 2019;Omrane & Savaşer, 2017). Selama pasar valuta asing terbuka dampak berita dapat diselidiki daripada kasus pasar keuangan lainya (Caporale, Spagnolo, & Spagnolo, 2017;Galati & Ho, 2001).…”

“…Selanjutnya, Cheung et al (2019) menunjukkan bahwa berita makroekonomi yang bersumber dari Jepang dan Amerika Serikat berpengaruh terhadap nilai tukar Jepang saat krisis keuangan global. Selama krisis keuangan global, berita makroekonomi memiliki peran dalam pergerakan nilai tukar (Omrane & Savaşer, 2017).…”