To preview the results of the paper, we find that the estimated reduced form econometric models (AR-MF) are broadly in line with a hybrid version of the monetary model, where, in addition to monetary policy stance indicators, risk factors and (new) measures of EA and US financial conditions sizably contribute to the determination of the $ exchange rate. 1 A strict interlinkage between risk factor shocks and economic dynamics has also been documented by Morana (2014b), consistent with the recent strand of "news driven" business cycle literature, which has drawn attention to the role of abrupt changes in expectations in driving economic fluctuations (Beaudry and Portier, 2014). Indeed, as recently shown by Morana (2014b) and Bagliano and Morana (2015), not only systematic fluctuations in the Fama-French and Charart factors are accounted by key macroeconomic and financial shocks, but, more importantly, their unexpected changes show signaling properties for macroeconomic prospects, consistent with their usual interpretation in terms of proxy for state variables capturing changes in the investment opportunity set. We then innovate the literature by including in the information set, in addition to standard macroeconomic fundamentals, financial condition indexes and direct measures of changing market expectations about the economic outlook, as yield by risk factors likewise the five Fama and French (1993 French (, 2015) factors and Charart (1997) momentum.
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