Unobservable Monetary Policy Surprises and Exchange Rates

Vahid Gholampour


The paper examines the effect of monetary policy statement shocks on exchange rates. I use Google's Natural Language tools to measure and track changes in the sentiment of FOMC and ECB post-meeting statements. The results reveal a negative relationship between the dollar's value and FOMC statement shocks. Investors sell (buy) the dollar when the sentiment of the FOMC statement is more positive (negative) than the previous one. This negative relationship could be explained by the special status of the U.S. dollar as a safe-haven currency and the significant effect of U.S. monetary policy on other countries' macroeconomic fundamentals. The value of the euro is positively related to ECB statement shocks. The size of the exchange rate response to statement shocks is comparable to that of term structure shocks. There is no material difference between the response of exchange rates in conventional and unconventional times. Statement shocks affect the exchange rates through the information channel.

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Accounting and Finance Research
ISSN 1927-5986 (Print)   ISSN 1927-5994 (Online) Email:

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