are those of the author and do not necessarily reflect the views of the Bank of Finland.

The impact of the US and European macroeconomic news on the USD/EUR volatility was examined by using the Flexible Fourier Form method. News increased volatility significantly, and the US news was the most important. The much-tested hypothesis of bad news having a greater impact on volatility was re-confirmed. The announcements were also divided into two categories, the first containing the news that gave conflicting information on the state of the economy and the other containing the news that were consistent. Conflicting news were found to increase volatility significantly more and faster than consistent news. (JEL: G14, C14, C12) * I thank Markku Lanne and two unknown referees for constructive criticisms and helpful suggestions. I am grateful to Jouko Vilmunen for the possibility of collecting highfrequency data during my internship in the Research Department of the Bank of Finland. Geoffrey Wood and the participants of the Bank of Finland workshop and the Seminar in Economic Statistics in SSE are also gratefully acknowledged for the helpful comments.

We study the impact of positive and negative macroeconomic U.S. and European news announcements in different phases of the business cycle on the high-frequency volatility of the EUR/USD exchange rate. The results suggest that news effects depend on the state of the economy. In general, news increases volatility more in good times than in bad times. News effects are also asymmetric with respect to sign: negative news increases volatility more in good times than in bad times, while there is no difference between the volatility effects of good news in bad and good times. * We thank the editor Bruce Mizrach, two anonymous referees and the associate editor for their constructive comments. We are also grateful to Timo Teräsvirta, Pentti Saikkonen, Niklas Ahlgren, Marko Korhonen and the participants in the XVI Annual

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The “unusually uncertain” phase in the global financial markets has inspired many researchers to study the effects of ambiguity (or “Knightian uncertainty”) on the decisions made by investors and their implications for the capital markets. We contribute to this literature by using a modified version of the time-varying GARCH model of Amado and Teräsvirta (2013) to analyze whether the increasing uncertainty has caused excess volatility in the US and European government bond markets. In our model, volatility is multiplicatively decomposed into two time-varying conditional components: the first being captured by a stable GARCH(1,1) process and the second driven by the level of uncertainty in the financial market.