TY  - UNPD
A1  - Gürkaynak, Refet S.
A1  - Kara, Hakan
A1  - Kısacıkoğlu, Burçin
A1  - Lee, Sang Seok
T1  - Monetary policy surprises and exchange rate behavior
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 642
N2  - Central banks unexpectedly tightening policy rates often observe the exchange value of their currency depreciate, rather than appreciate as predicted by standard models. We document this for Fed and ECB policy days using event studies and ask whether an information effect, where the public attributes the policy surprise to an unobserved state of the economy that the central bank is signaling by its policy may explain the abnormality. It turns out that many informational assumptions make a standard two- country New Keynesian model match this behavior. To identify the particular mechanism, we condition on multiple asset prices in the event study and model implications for these. We find that there is heterogeneity in this dimension in the event study and no model with a single regime can match the evidence. Further, even after conditioning on possible information effects driving longer term interest rates, there appear to be other drivers of exchange rates. Our results show that existing models have a long way to go in reconciling event study analysis with model-based mechanisms of asset pricing.
T3  - CFS working paper series - 642 
KW  - exchange rate response to monetary policy
KW  - central bank information effect
KW  - open economy macro-finance modeling
Y1  - 2020
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/55497
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-554977
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -