Speaker: Victoria Halstensen, European University Institute
ABSTRACT
Informational heterogeneity is an important feature of foreign exchange markets. Introducing dispersed information into a standard monetary exchange rate model breaks the direct mapping between the current economic state and the exchange rate. The presence of dispersed information in conjunction with news releases on macroeconomic conditions leads to time-coordinated expectation revisions that produce jumps in the exchange rate path. Employing newly developed statistical methods for disentangling jumps, I illustrate that jump activity is closely linked to news releases. This supports the notion that exchange rate jump activity arises as a consequence of expectation revisions from the arrival of new price relevant information.