Noisy news and exchange rates: A SVAR approach

摘要

This paper introduces noisy news shocks into a model of exchange rate determination to measure the impact of these shocks using a SVAR. Agents in the foreign exchange market make decisions with imperfect information about economic fundamentals driving interest rate differentials between countries in that they must rely on a noisy signal of future interest rates. I apply the framework to the USD/GBP nominal exchange rate for the period 1986 2013. Results show that noisy-news explains approximatel