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Economic News, Exchange Rates and Interest Rates

Economic News, Exchange Rates and Interest Rates
Author: Gikas A. Hardouvelis
Journal: Journal of International Money and Finance, March 1988, 7:23-35

Abstract: The paper examines the post-October 1979 response of exchange rates and interest rates to the new information contained in the first announcement of fifteen US macroeconomic series. Markets respond primarily to monetary news, but also to news about the trade deficit, domestic inflation, and variables that reflect the state of the business cycle. For all fifteen macroeconomic variables, an increase (decrease) in interest rates is accompanied by an appreciation (depreciation) of the dollar, which is consistent with models that stress price rigidity and
absence of purchasing power parity.

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