Monetary Policy Announcements, Information Shocks, and Exchange Rate Dynamics

Abstract We study nominal exchange rate dynamics in the aftermath of U.S. monetary policy announcements. Using high-frequency interest and stock price movements around FOMC announcements, we distinguish between pure shocks information shocks, which are associated with new contained Contractionary give rise to a strong, but transitory, appreciation on impact. Information also appreciate rate, effect builds up only slowly over time is highly persistent. Thus, conclude that although short-run effects primarily due medium-run response driven by effects.