Monetary Policy News and Exchange Rate Responses: Do Only Surprises Matter?

TABLE 4 JPY/USD: Exchange Rate Responses to Changes in The Federal Funds Target Rate

Daily Data: 27 March 1989 to 4 April 2001_________________________________________________________

Model 1A________

Model 1B______

Model 2A

Model 2B_______

^C

-0.0000

(0.0011)___________

-0.0004

(0.0010)_________

-0.0005

(0.0010)_________

-0.0000

(0.0009)___________

FFT-EXPECTED

0.0001

(0.0045)____________

0.0014

(0.0042)_________

Fft-Unexpected

0.0135

(0.0084)____________

0.0126*

(0.0073)_________

FFT-ACTUAL

0.0039

(0.0033)_________

0.0048
(0.0029)___________

CPI-UNEXP

-0.0098

(0.0553)____________

-0.0178

(0.0553)_________

IP-UNEXP

0.0157

(0.0141)____________

-0.0167

(0.0142)_________

PPI-UNEXP

-0.0367*

(0.0192)____________

-0.0389**

(0.0185)_________

-0.0422**

(0.0188)_________

-0.0430**

(0.0182)___________

TRDE-UNEXP

-0.0004

(0.0037)____________

0.0007

(0.0036)_________

UNEM-UNEXP

0.0110

(0.0137)____________

0.0057

(0.0131)_________

Observations__________

42

42

42

42

R-squared____________

0.26_______________

0.22_____________

0.23______________

0.19______________

S.E. of regression______

0.0011_____________

0.0012__________

0.0012__________

0.0012___________

F-Statistic________________

1.7470_____________

3.5780**________

1.7569__________

4.6799**_________

NOTES:

(a) * Denotes significance at 90%, ** Denotes significance at 95%, *** Denotes significance at 99%.

(b) Standard Errors in ( ) below the point estimates.

(c) Estimations are defined in Equations (1) and (2) in the text.

(d) The dependent variable is the first difference of the log of the daily JPY/USD spot exchange rate.

(e) The independent variables FFT-EXPECTED and FFT-UNEXPECTED measure the expected and the unexpected element,
respectively, of the Federal Funds Target rate change on FOMC dates. Both variables are taken from Kuttner (2001). The independent
variable FFT-ACTUAL is the actual Federal Funds Target rate change on FOMC dates.

(f) The control variables measure the surprise element of US macroeconomic announcements concerning CPI (CPI-UNEXP),
Industrial Production (IP-UNEXP), PPI (PPI-UNEXP), Balance of Trade (TRADE-UNEXP) and Unemployment (UNEM-UNEXP).