THE EFFECTS OF MACROECONOMIC NEWS ON HIGH-FREQUENCY EXCHANGE-RATE BEHAVIOR

This paper studies the high frequency reaction of the DEM/USD exchange rate to publicly announced macroeconomic information emanating from G ermany and the US. By using data sampled at a five-minute frequency, w e are able to identify significant impacts of most announcements on th e exchange rate change in the 15 minutes post-announcement, although t he significance of these effects decreases rapidly as the interval ove r which the post-announcement change in exchange rates is increased. T he direction of the exchange rate response conforms, in general, with a reaction function interpretation whereby reactions to macroeconomic news are driven by the likely operations of monetary authorities in do mestic money markets. Further, we detect influences of German monetary policy decisions on the reaction of the exchange rate, and also diffe rences between U.S. and German announcements in the exchange rate reac tion time pattern.