F31 - Foreign ExchangeReturn

Using the big data of news texts and a novel, news extended exchange rate model, we investigate the impact of media news on major exchange rates. To present the impact of the U.S. Dollar related news on EUR/USD and GBP/USD, we first use a machine learning model and detect which news topics relate to U.S. Dollar. Next, we calculate the attention to the U.S. Dollar related news topics over time. Eventually, we visualize how Exchange rates react to shocks in the attention to the U.S. Dollar related news topics. The impulse response functions of U.S. Dollar bilateral rates show that exchange rates respond to the U.S. Dollar related news and to the economic uncertainty news shocks with statistical significance in several periods after the shock. Forecast error decomposition documents that 25-27% of exchange rate variation in the long run comes from the news. The results reveal, that news add valuable information to macroeconomic fundamentals for identifying exchange rates, and exchange rates are better identified when both, macroeconomic and news information are used together. These findings are important for exchange rate modeling.

We investigate an impact of oil-price shocks on GDP and exchange rate dynamics in resource-heterogeneous economies. We employ a Markov regime-switching version of a vector autoregressive (VAR) model to allow for regime shifts, non-linear effects and timevarying parameters of the VAR process. Empirically we use quarterly data series in oil exporting, metal-exporting, and less-resource-intensive economies. On average, real GDP in oil-exporting economies exhibits substantial contraction, while for metal exporters there is a significant real GDP expansion suggesting an offsetting effect of metal exports on oil imports. We find that currency appreciation state is more persistent in oil- and metal exporting economies while less-resource-intensive economies remain longer in a currency depreciation state. Further evidence suggests existence of the counteracting forces such as foreign exchange interventions by authorities in oil-exporting economies. It also emerges that currency appreciation in oil-exporting economies is driven largely by economic performance rather than oil price  movement.

We assess the impact of ECB monetary policy on global aggregate and sectoral commodity prices over 2001–2019. We employ a SVAR model and separately assess periods before and after the global financial crisis. Our key results indicate that contractionary monetary policy shocks have positive effects on commodity prices during both conventional and unconventional monetary policy periods, indicating the effectiveness of unconventional monetary policy tools. The largest impact is documented on fuel and food commodities. Our results also suggest that the effect of ECB monetary policy on commodity prices transmits through the exchange rate channel, which influences European market demand.