The exact timing of the US monetary policy changes is an important issue. Until 1994, the Fed
did not announce but signaled its decision to change the target rate through open market operations
undertaken before noon (from 11.30 to 11.35 am) Eastern time. Starting in 1994, the Fed adopted a
routine of announcing target rate changes and from 1995 onwards it did so at 2.15 pm Eastern time.7
Since the announcement routine has changed during our sample period, no exchange rate quote time-
stamp is ideal for the entire period under study. Our baseline analysis reports the results from models
using noon Eastern time exchange rate quotes while the robustness analysis described in section 3.6 uses
3 pm Eastern time quotes as well as a mix of quotes. Accordingly, our analysis incorporates two separate
foreign exchange market data-sets. The first consists of daily spot prices for the DEM/USD, JPY/USD
and GBP/USD exchange rates obtained from the Pacific Exchange Rate Service and recorded at noon
Pacific time (3 pm Eastern time). The second consists of daily spot prices for the same three exchange
rates obtained from the Board of Governors of the Federal Reserve and recorded at noon Eastern time.
We control for macroeconomic news surprises coinciding with US monetary policy changes. We
measure surprises as the difference between official announcements regarding CPI, PPI, industrial
production, the unemployment rate and the trade balance, and results of surveys of expectations of these
announcements conducted by Money Market Services and Bloomberg during the days preceding the
announcements. The official value of these news variables is announced once a month, or at a lower
frequency. Our news variables capture the associated surprise element on announcement dates, thus these
variables are non-zero only on announcement dates and only when the announcement differs from market
expectations.
Official foreign exchange intervention data and foreign interest rate data are obtained directly
from the central banks relevant for this study. Table 1 provides descriptive statistics for all the variables.
7 For additional details on the timing of Fed announcements, see Kuttner (2001) and Andersen, Bollerslev, Diebold
and Vega (2003).