Melvin, Michael, Saborowski, Christian, Sager, Michael and Taylor, Mark P.. (2010) Bank of England interest rate announcements and the foreign exchange market. International Journal of Central Banking, Vol.6 (No.3). pp. 211-247. ISSN 1815-4654

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Abstract

Since 1997, the Bank of England Monetary Policy Committee (MPC) has met monthly to set the UK policy interest rate. Using a Markov-switching framework that incorporates endogenous transition probabilities, we examine intraday, five-minute return data for evidence of systematic patterns in exchange rate movements on MPC policy announcement days. We find evidence for non-linear regime switching between a high-volatility, informed trading state and a low-volatility, liquidity trading state. MPC surprise announcements are shown to significantly affect the probability that the market enters and remains within the informed trading regime, with some limited evidence of market positioning just prior to the announcement.

Item Type:	Journal Article
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Economics Faculty of Social Sciences > Warwick Business School
Journal or Publication Title:	International Journal of Central Banking
Publisher:	Federal Reserve Board
ISSN:	1815-4654
Official Date:	September 2010
Dates:	Date Event September 2010 Published
Volume:	Vol.6
Number:	No.3
Number of Pages:	37
Page Range:	pp. 211-247
Status:	Not Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Open Access
URI:	http://wrap.warwick.ac.uk/id/eprint/5185

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