regression model, and each row shows the coefficient estimate (and standard error) for only the surprise
component of an actual monetary policy change regardless of whether or not any of the news control
variables are significant and included in the regression.11
Whereas the same-day effect is highly significant, as previously discussed, the table shows that
none of the lead models are associated with significant effects of the unexpected component of a
monetary policy change. This complete absence of delayed effects implies that the DEM/USD response to
a monetary policy surprise takes place on the same day as the monetary policy change occurs and,
therefore, strongly suggests that the DEM/USD exchange rate market absorbs news quickly.
3.3 The JPY/USD Exchange Rate
The results from regressing same-day changes in the JPY/USD exchange rate on the expected and the
unexpected components of the Fed funds target rate changes are displayed in the first two columns of
Table 4. The last two columns of Table 4 show the results from the regression models using the actual
change in the Federal Funds target rate as the focal explanatory variable. The results are very similar to
those based on the DEM/USD exchange rate.
Focusing on the model using the Kuttner-decomposition and only including significant news
control variables, the results (displayed in the second column of Table 4) show an insignificant estimate
of the b1 coefficient and a positive and (this time only marginally) significant b2 coefficient, thus once
again indicating that an unexpected tightening (loosening) of US monetary policy is associated with a
same-day depreciation (appreciation) of the foreign currency. The magnitude of the estimated b2
coefficient suggests that a one percentage point (one hundred basis points) change in the target rate
triggers a 1.26 percent same-day change in the exchange rate.
11 A high R2 statistic and a highly significant F-statistic are, in the absence of a significant coefficient associated
with the surprise component of the monetary policy change, due to the inclusion of one or more significant news
control variables.
12