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New “News” for the news model of the spot exchange rate

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  • Du, Wenti
  • Pentecost, Eric J.

Abstract

The “News” model of the exchange rate, that received only weak support in the 1980s, is shown to be a verifiable model of the bilateral spot rate once the “news” is appropriately measured. Using market sentiment and policy uncertainty indices derived from big data for Japan, as “news” and survey data of agents’ expectations of the spot rate one month ahead, the “News” model of the exchange rate is shown not to be rejected for the bilateral JPY/USD rate from June 2009 to December 2017.

Suggested Citation

  • Du, Wenti & Pentecost, Eric J., 2021. "New “News” for the news model of the spot exchange rate," Economics Letters, Elsevier, vol. 200(C).
    • Handle: RePEc:eee:ecolet:v:200:y:2021:i:c:s0165176521000471
    DOI: 10.1016/j.econlet.2021.109770
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    References listed on IDEAS

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    1. Frenkel, Jacob A, 1981. "Flexible Exchange Rates, Prices, and the Role of "News": Lessons from the 1970s," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 665-705, August.
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    4. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    5. Edwards, Sebastian, 1982. "Exchange rate market efficiency and new information," Economics Letters, Elsevier, vol. 9(4), pages 377-382.
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    Cited by:

    1. Aquilante, Tommaso & Di Pace, Federico & Masolo, Riccardo M., 2022. "Exchange-rate and news: Evidence from the COVID pandemic," Economics Letters, Elsevier, vol. 213(C).

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    More about this item

    Keywords

    Big data; Market sentiment; Policy uncertainty; The “News” model of the exchange rate;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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