Exchange rates and macro news in emerging markets

This paper uses a VAR-GARCH(1,1) model to analyse mean and volatility spillovers between macro news (in the form of newspaper headlines) and the exchange rates vis-a-vis both the US dollar and the euro of the currencies of a group of emerging countries including the Czech Republic, Hungary, Indonesia, Korea, Mexico, Poland, South Africa, Thailand and Turkey over the period 02/1/2003-23/9/2014. The results suggest limited dynamic linkages between the first moments compared to the second moments, causality-in-variance being found in a number of cases; further, the recent global financial crisis appears to have had a significant impact. The conditional correlations also provide evidence of co-movement. Finally, as expected the impact of news is more muted in the case of managed currencies, significant spillovers only being found in the case of foreign news in the crisis period.