Politická ekonomie
Politická ekonomie
Prague Economic Papers
University of Economics, Prague

Prague Economic Papers Vol. 27 No. 5

The Impact of German Macroeconomic News on Emerging European Forex Markets

DOI: https://doi.org/10.18267/j.pep.670

[full text (PDF)]

Michala Moravcová

This paper analyses the impact of German macroeconomic news announcements and ECB meeting days on the conditional volatility of the Czech, Polish, and Hungarian Foreign Exchange markets as proxied by CZK/EUR, PLN/EUR, and HUF/EUR exchange rate returns over six years (2010–2015). A currency intervention period (11/2013–2015) in the Czech Republic is examined separately. EGARCH-type models with normal and Student’s t-distributions are employed. The comprehensive analysis shows the following results. (i) The IFO index, Factory Orders increase and the PMI index from the Service Sector, the labour market data decrease conditional volatility of PLN/EUR. (ii) The IFO index and Industrial Production increase conditional volatility of HUF/EUR on the day of the announcement. (iii) Data from the labour market has a calming effect on CZK/ EUR after the central bank launched currency interventions. (iv) IFO index increases and the PMI index from the Manufacturing Sector decreases conditional volatility of CZK/EUR before currency interventions were introduced (2010–11/2013).

Keywords: EGARCH, exchange rate volatility, heteroscedasticity, macroeconomic news announcements

JEL Classification: C52, F31, F36, G15, P59

References:

Andersen, T. G., Bollerslev, T., Diebold, F. X., Vega, C. (2003). Micro Effects of Macro

Announcements: Real-Time Price Discovery in Foreign Exchange. American Economic

Review, 93(1), 38–62, https://doi.org/10.1257/000282803321455151

Andersen, T. G., Bollerslev, T., Diebold, F. X., Vega, C. (2007). Real-Time Price Discovery in Global Stock, Bond and Foreign Exchange Markets. Journal of International Economics, 73(2), 251–277, https://doi.org/10.1016/j.jinteco.2007.02.004

Bollerslev, T. (1986). Generalized Autoregressive Conditional Heteroskedasticity. Journal

of Econometrics, 31(3), 307–327, https://doi.org/10.1016/0304-4076(86)90063-1

Büttner, D., Hayo, B. (2012). EMU-Related News and Financial Markets in the Czech Republic, Hungary and Poland. Applied Economics, 44(31), 4037–4053. http://dx.doi.org/10.1080/00036846.2011.587775

Büttner, D., Hayo, B., Neuenkirch, M. (2012). The Impact of Foreign Macroeconomic News

on Financial Markets in the Czech Republic, Hungary, and Poland. Empirica, 39(1),

19–44, https://doi.org/10.1007/s10663-010-9153-0

Cavusoglu, N. (2011). Exchange Rates and the Effectiveness of Actual and Oral Interventions: A Survey on Findings, Issues and Policy Implications. Global Economy Journal, 10(4), 1–40, https://doi.org/10.2202/1524-5861.1694

Diebold, F. X., Yilmaz, K. (2009). Measuring Financial Asset Return and Volatility Spillovers with Application to Global Equity Markets. Economic Journal, 119(534), 158–171, https://doi.org/10.1111/j.1468-0297.2008.02208.x

Égert, B., Kočenda, E. (2014). The Impact of Macro News and Central Bank

Communication on Emerging European Forex Markets. Economic Systems, 38(1), 73–88,

http://dx.doi.org/10.1016/j.ecosys.2013.01.004

Ehrmann, M., Fratzscher, M. (2007). Communication by Central Bank Committee Members:

Different Strategies, Same Effectiveness? Journal of Money, Credit and Banking, 39(2–3),

509–541, https://doi.org/10.1111/j.0022-2879.2007.00034.x

Erenburg, G., Kurov, A., Lasser, D. J. (2006). Trading Around Macroeconomic Announcements:

Are All Traders Created Equal? Journal of Financial Intermediation, 15(4), 470–493, http://dx.doi.org/10.1016/j.jfi.2005.07.003

Evans, M. D. D., Lyons, R. K. (2008). How Is Macro News Transmitted to Exchange Rates? Journal of Financial Economics, 88(1), 26–50, http://dx.doi.org/10.1016/j.jfineco.2007.06.001

Fišer, R., Horváth, R. (2010). Central Bank Communication and Exchange Rate Volatility:

A GARCH Analysis. Macroeconomics and Finance in Emerging Market Economies, 3(1),

25–31, http://dx.doi.org/10.1080/17520840903498099

Fratzscher, M. (2006). On the Long-Term Effectiveness of Exchange Rate Communication and

Interventions. Journal of International Money and Finance, 25(1), 146–167, http://dx.doi.

org/10.1016/j.jimonfin.2005.10.007

Galati, G., Ho, C. (2003). Macroeconomic News and the Euro/Dollar Exchange Rate, Economic

Notes, 32(3), 371–398, https://doi.org/10.1111/1468-0300.00118

Hanousek, J., Koč enda, E., Kutan, A. (2009). The Reaction of Asset Prices to Macroeconomic Announcements in New EU Markets: Evidence from Intraday Data. Journal of Financial Stability, 5(2), 199–219, http://dx.doi.org/10.1016/j.jfs.2008.01.003

Hanousek, J., Kočenda, E. (2011). Foreign News and Spillovers in Emerging European Stock

Markets. Review of International Economics, 19(1), 170–188.

Hayo, B., Kutan, A. M., Neuenkirch, M. (2010). The Impact of U.S. Central Bank

Communication on European and Pacific Equity Markets. Economics Letters, 108(2),

172–174, http://dx.doi.org/10.1016/j.econlet.2010.05.006

Hsieh, D. (1989). Modeling Heteroscedasticity in Daily Foreign-Exchange Rates. Journal of Business and Economic Statistics, 7(3), 307–317, https://doi.org/10.1080/07350015.1989.10509740

Jansen, D.-J., De Haan, J. (2005). Talking Heads: The Effects of ECB Statements on the Euro-Dollar Exchange Rate. Journal of International Money and Finance, 24(2), 343–361, http://dx.doi.org/10.1016/j.jimonfin.2004.12.009

Javed, F., Mantalos, P. (2013). GARCH-Type Models and the Performance of Information Criteria.

Communications in Statistics: Simulation and Computation, 42(8), 1917–1933.

Jones, B., Chieng-Ting, L., Masih, M. M. (2005). Macroeconomic Announcements, Volatility, and Interrelationships: An Examination of the UK Interest Rate and Equity Markets. International Review of Financial Analysis, 14(3), 356–375, http://dx.doi.org/10.1016/j.irfa.2004.10.001

Jotikasthira, Ch., Lundblad, Ch., Ramadorai, T. (2012). Asset Fire Sales and Purchases and

the International Transmission of Funding Shocks. Journal of Finance, 67(6), 2015–2050,

https://doi.org/10.1111/j.1540-6261.2012.01780.x

Kim, S. J. (1998). Do Australian and the US Macroeconomic News Announcements Affect

the USD/AUD Exchange Rate? Some Evidence from E-GARCH Estimations. Journal

of Multinational Financial Management, 8(2–3), 233–248, http://dx.doi.org/10.1016/

S1042-444X(98)00029-2

Kočenda, E., Moravcová, M. (2016). Intraday Effect of News on Emerging European Forex Markets: An Event Study Analysis. IES. WP 20/2016.

Longmore, R., Robinson, W. (2005). Modelling and Forecasting Exchange Rate Dynamics:

An Application of Asymmetric Volatility Models. Money Affairs, 18(1), 23–56.

Ng, A. (2000). Volatility Spillover Effects from Japan and US to the Pacific-Basin. Journal of International Money and Finance, 19(2), 207–233, http://dx.doi.org/10.1016/

S0261-5606(00)00006-1

Poplawski, K. (2016). The Role of Central Europe in the German Economy the Political

Consequences. Centre for Eastern Studies, September/2016. ISBN 978-83-62936-84-7.

Rigobon, R., Sack, B. (2008). Noisy Macroeconomic Announcements, Monetary Policy, and Asset Prices, in Campbell, J. Y., ed., Asset Prices and Monetary Policy. The University of Chicago Press, Chicago, 335–370.

Škubna, O., Smutka, L., Steininger, M., Maitah, M. (2011). Selected Central European Countries’ Foreign Trade Development. Ekonomická Revue-Central European Review of Economic

Issues, 14(1), 21–35, https://doi.org/10.7327/cerei.2011.03.02

Taylor, S. J. (1986). Forecasting the Volatility of Currency Exchange Rates. International Journal of Forecasting, 3(1), 159–170, https://doi.org/10.1016/0169-2070(87)90085-9

Yoon, S., Lee, K. S. (2008). The Volatility and Asymmetry of Won/Dollar Exchange Rate. Journal of Social Sciences, 4(1), 7–9, https://doi.org/10.3844/jssp.2008.7.9