Can Pure Information Shocks Explain the U.S. Exchange Rate Puzzle?

Recent evidence has shown that the dollar depreciates instead of appreciates in response to a tightening of U.S. monetary policy. This phenomenon generates a U.S. exchange rate puzzle. Following Jarocinski and Karadi (2020), we divide the U.S. monetary surprises into pure monetary policy and central bank information shocks and test whether pure information effects explain the puzzle across nine advanced countries' currencies. We find that information shocks produce the opposite response of exchange rates per traditional theory predictions. Our results are consistent with the ``flight-to-safety'' effects. However, pure monetary policy shocks still fail to engender the conventional results, thus indicating that information effects alone are insufficient to explain the puzzle