Macroeconomic News and Exchange Rates: Evidence of Unstable Effect

Although the link between macroeconomic news announcements and exchange rates is well documented in recent literature, this connection may be unstable. By using a broad set of macroeconomic news announcements and high frequency forex data for the Euro/Dollar, Pound/Dollar and Yen/Dollar from Nov 1, 2004 to Mar 31, 2014, we obtain two major findings with regards to this instability. First, many macroeconomic news announcements exhibit unstable effects with certain patterns in foreign exchange rates. These news effects may change in magnitude and even in their sign over time, over business cycles and crises within distinctive contexts. This finding is robust because the results are obtained by applying a Two-Regime Smooth Transition Regression Model, a Breakpoints Regression Model, and an Efficient Test of Parameter Instability which are all consistent with each other. Second, when we explore the source of this instability, we find that global risks and the reaction by central bank monetary policy to these risks to be possible factors causing this instability.

A DYNAMIC FRAMEWORK FOR THE RELATIONS BETWEEN FOREIGN EXCHANGE RATES, SAVINGS AND INVESTMENTS

The Meese-Rogoff forecasting puzzle states that foreign exchange (FX) rates are unpredictable. Since one country’s macroeconomic conditions could affect the price of its national currency, we study the dynamic relations between the FX rates and some macroeconomic accounts. Our research tests whether the predictability of the FX rates could be improved through the advanced econometrics. Improving the predictability of the FX rates has important implications for various groups including investors, business entities and the government. The present thesis examines the dynamic relations between the FX rates, savings and investments for a sample of 25 countries from the Organization for Economic Cooperation and Development. We apply quarterly data of FX rates, macroeconomic indices and accounts including the savings and the investments over three decades. Through preliminary Augmented Dickey-Fuller unit root tests and Johansen cointegration tests, we found that the savings rate and the investment rate are cointegrated with the vector (1,-1). This result is consistent with many previous studies on the savings-investment relations and therefore confirms the validity of the Feldstein-Horioka puzzle. Because of the special cointegrating relation between the savings rate and investment rate, we introduce the savings-investment rate differential (SID). Investigating each country through a vector autoregression (VAR) model, we observe extremely insignificant coefficient estimates of the historical SIDs upon the present FX rates. We also report similar findings through the panel VAR approach. We thus conclude that the historical SIDs are useless in forecasting the FX rate. Nonetheless, the coefficients of the past FX rates upon the current SIDs for both the country-specific and the panel VAR models are statistically significant. Therefore, we conclude that the historical FX rates can conversely predict the SID to some degree. Specifically, depreciation in the domestic currency would cause the increase in the SID.

Estelle Cuffe Hawley fonds, 1852-1999, n.d.

Estelle Cuffe Hawley (1894-1995) was an educator, businesswoman and politician, who became the first woman alderman on the St. Catharines City Council. She began her career as a teacher in Peterborough in 1913, and later taught in St. Catharines at Connaught School and St. Paul’s Ward School, where she served as Principal for six years. In 1928-29, she worked as an exchange teacher in Edmonton, Alberta. This would be Estelle’s last year in the teaching profession. She moved back to St. Catharines in 1930 and began a career in business, as an employee of Sun Life Assurance Co. She remained in this profession until around 1952. It was during this period that she became very active in the community and local politics. In 1934 she was elected to the St. Catharines Board of Education, where she advocated for the improvement of teachers’ salaries, the introduction of nursing services in schools, and the inclusion of music in the curriculum. She served as a member of the school board until 1937. The following year, she became the first woman elected to the St. Catharines City Council. As an alderman, she worked to improve the community's social welfare services, serving consecutively as chairman of all committees. She established comprehensive health services (including medical, dental and nursing), in the public, separate and secondary schools of St. Catharines, the first program of its kind in Canada. She was also instrumental in establishing minimum housing standards and engaging the public in local government by arranging a series of lectures by city officials. She remained a member of City Council until 1943. The following year she campaigned unsuccessfully for the mayoralty. In 1953 she married Hubert Hawley and moved to Orillia. She continued to remain active in the community, serving as President of the Ontario Recreation Association from 1950-1953, and editor of their Bulletin from 1955-1961. During the 1960s, she worked with various groups, including the Voice of Women, the Mental Health Association and the Freedom from Hunger Campaign. In addition to this work, Estelle wrote poetry and short stories, some of which were published in the Peterborough Review, the Globe and Mail and the Canadian Churchman. Some of her short stories (often about her childhood experiences) were broadcast on the CBC, as well as her experiences as a Town Councillor (under the pseudonym Rebecca Johnson in 1961). She also broadcast a segment that was part of a series called “Winning the Peace” in April 1944. Estelle was a sought-after public speaker, speaking on topics such as peace, democracy, citizenship, education, and women’s rights. In 1976, Brock University conferred an honorary Doctor of Law degree to Estelle for her leadership as an educator, businesswoman and a stateswoman. Her husband Hubert died that same year, and Estelle subsequently moved to Mississauga. With the assistance of an Ontario Heritage Foundation grant, she began work on her memoir. She later moved back to Orillia and died there in 1995, at the age of 101.

Letter addressed by Benjamin Bates (bearer of the memorial) to a Member of the Legislature, ca. 1812.

Benjamin Bates was a member of the Religious Society of Friends, and served as Clerk of the Society at the time that the Memorial and Petition was written.

Member's Pass House of Representatives 1917

"Member's Pass House of Representatives Washington, D.C., May 16th, 1917 Admit Mr. A.A. Schmon to the visitor's gallery for Session (signed) Thomas Scully M.C. from New Jersey"

Letter addressed by Benjamin Bates (bearer of the memorial) to a Member of the Legislature, ca. 1812.

Benjamin Bates was a member of the Religious Society of Friends, and served as Clerk of the Society at the time that the Memorial and Petition was written.

Macroeconomic News Effects and Foreign Exchange Jumps

This thesis investigates how macroeconomic news announcements affect jumps and cojumps in foreign exchange markets, especially under different business cycles. We use 5-min interval from high frequency data on Euro/Dollar, Pound/Dollar and Yen/Dollar from Nov. 1, 2004 to Feb. 28, 2015. The jump detection method was proposed by Andersen et al. (2007c), Lee & Mykland (2008) and then modified by Boudt et al. (2011a) for robustness. Then we apply the two-regime smooth transition regression model of Teräsvirta (1994) to explore news effects under different business cycles. We find that scheduled news related to employment, real activity, forward expectations, monetary policy, current account, price and consumption influences forex jumps, but only FOMC Rate Decisions has consistent effects on cojumps. Speeches given by major central bank officials near a crisis also significantly affect jumps and cojumps. However, the impacts of some macroeconomic news are not the same under different economic states.

Macroeconomic News and LOB in Foreign Exchange ECN Market

We investigate the macroeconomic news effect on the dynamics of the limit order books (LOB) for euro-dollar ECN market in different economic states between Jan. 2006 to Dec. 2009. Using a VAR-STR model on the news surprise, pure news, aggregated good and bad news, we show that news effects on the LOB dynamics vary in different states of economy. The LOB dynamics are measured by depth, spread, slope and volatility. In contract to slope and volatility, depth and spread strongly respond to news surprise and pure news during recession and expansion. These characteristics are more affected by aggregated good and bad news during expansion. News effects are robust to alternative characteristic measures, the different sides of the LOB and the different levels in the LOB.

The Weekly Leader, Toronto, Ontario, June 16, 1866

The Weekly Leader, Toronto, Ontario, June 16, 1866.