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Re: st: Currency_Time-series
On Apr 3, 2007, at 12:51 PM, b.qureishi wrote:
I will be conducting an empirical study to asses the affects of “The
release of US Macro data on daily currency prices”- and whether or not
such fundamental releases start certain trends. I have about 30 years
of data for cable, eur/usd and usd/jpy.-dependant variables. My
independent variables consist of GDP, PPI, CPI, INTEREST RATES and
Your description of the proposed study is sufficiently ambiguous that
I don't believe meaningful suggestions can be offered before you
clarify your objectives. I see two possibilities:
The frequency of my independent variables in monthly, excluding GDP
which is quarterly, over 30 years. The frequency of my dependant
variables is daily over 30 years.
In light of the above, my data is no-doubt time-series. My question
is, how to I get my independent variables to reconcile with my
dependant variables? I.e how can I get for example quarterly gdp
figures to translate to a daily fx figure?- my lecturer who is not a
currency whiz suggests that I should convert my daily rates into
quarterly rates. I could do this, but believe that it will not
directly contribute to what I want to do.
Your thoughts, suggestions and direction would be most appreciated.
(1) You want to estimate a macroeconomic model of exchange rate
(2) You want to investigate the efficiency of the foreign exchange
market to macroeconomic "news."
In the first case, the natural frequency of the analysis would be
quarterly (if you include NIPA data) or monthly (otherwise). The
release of the data is not what's relevant in this case; rather, the
exchange rate is viewed as a function of the macroeconomic activity
that occurred over the current quarter (month), and possibly preceding
ones. In that case, I would recommend the last observation of the
quarter (month) for the exchange rate, although other researchers have
used the average. There are a variety of econometric approaches one
can use for this investigation, but an important issue will be
simultaneity / endogeneity of the macro variables to the value of the
exchange rate. Neely & Sarno (2002) might be a place to start
exploring this question.
In the second case, you likely want to know how the FX market responds
to the release of macroeconomic "news" -- that is, the day (or even
minute) that the information about the macroeconomic variable is
released to the public. In this case, you will need data on the exact
day (and time) of the release of the macroeconomic information, which
for NIPA data can be up to three quarters following the quarter in
which the measured activity actually occurred, not including subsequent
revisions. The natural frequency for this study would be daily (or
higher). See chapter 4 of Campbell, Lo, and MacKinlay (1997) for
examples of such an event study approach.
Hope this helps.
Neely, Christopher J. & Sarno, Lucio, "How Well Do Monetary
Fundamentals Forecast Exchange Rates?" Federal Reserve Bank of St.
Louis Economic Review, September-October, 2002, pp. 51-74.
Campbell, John Y., Lo, Andrew W. & MacKinlay, A. Craig, "The
Econometrics of Financial Markets," Princeton University Press, 1997.
P.S. The correct spelling is "dependent."
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