We use an impulse response methodology to analyse the effects of U.S. macroeconomic
news announcements on the volatilities of three major exchange rates (Euro, Pound
Sterling and Yen). Our data consist of 5 minute returns on exchange rates as well as the
times of news announcements. In the definition of impulse responses, we allow for
different types of news, and consider two categories in the application: those considered
positive or negative for the U.S. economy. Using a multivariate GARCH model with
exogenous news effects, we find that the initial impact of positive news on the volatility
of the Pound is higher than that of the Euro, whereas the persistence of shocks is highest
for the Yen. For negative news, we find that an important part of the impact on the Yen
and Pound is induced by volatility spillover from the Euro
