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This study examines the relationship between the real exchange rate and the trade flows of Sweden in the presence of so-called structural breaks. The purpose is rooted in the hypothesis that the real exchange rate has been disconnected from global trade flows in the aftermath of the Global Financial Crisis (GFC) in 2008. Using both aggregated and bilateral trade data from Sweden’s six major trading partners from the period 2004 to 2018, significant breaks are detected in 10 out of 14 cases by the Bai and Perron (1998) approach, indicating that the effect of the exchange rate has changed. However, the breaks are widespread and the coefficient estimates show no clear pattern and hence unequivocal evidence for the hypothesis of a disconnect. Despite the ambiguous evidence, the cointegration tests suggests that there is a long-run relationship between the real exchange rate and trade flows of Sweden.

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Over the last twenty years or so the Dynamic Volatility literature has produced a wealth of univariate and multivariate GARCH type models. While the univariate models have been relatively successful in empirical studies, they suffer from a number ofweaknesses, such as unverifiable parameter restrictions, existence of moment conditions and the retention of Normality. These problems are naturally more acute in the multivariate GARCH type models, which in addition have the problem of overparameterization. This dissertation uses the Student's t distribution and follows the Probabilistic Reduction (PR) methodology to modify and extend the univariate and multivariate volatility models viewed as alternative to the GARCH models. Its most important advantage is that it gives rise to internally consistent statistical models that do not require ad hoc parameter restrictions unlike the GARCH formulations. Chapters 1 and 2 provide an overview of my dissertation and recent developments in the volatility literature. In Chapter 3 we provide an empirical illustration of the PR approach for modeling univariate volatility. Estimation results suggest that the Student's t AR model is a parsimonious and statistically adequate representation of exchange rate returns and Dow Jones returns data. Econometric modeling based on the Student's t distribution introduces an additional variable - the degree of freedom parameter. In Chapter 4 we focus on two questions relating to the `degree of freedom' parameter. A simulation study is used to examine:(i) the ability of the kurtosis coefficient to accurately capture the implied degrees of freedom, and (ii) the ability of Student's t GARCH model to estimate the true degree of freedom parameter accurately. Simulation results reveal that the kurtosis coefficient and the Student's t GARCH model (Bollerslev, 1987) provide biased and inconsistent estimators of the degree of freedom parameter. Chapter 5 develops the Students' t Dynamic Linear Regression (DLR) }model which allows us to explain univariate volatility in terms of: (i) volatility in the past history of the series itself and (ii) volatility in other relevant exogenous variables. Empirical results of this chapter suggest that the Student's t DLR model provides a promising way to model volatility. The main advantage of this model is that it is defined in terms of observable random variables and their lags, and not the errors as is the case with the GARCH models. This makes the inclusion of relevant exogenous variables a natural part of the model set up. In Chapter 6 we propose the Student's t VAR model which deals effectively with several key issues raised in the multivariate volatility literature. In particular, it ensures positive definiteness of the variance-covariance matrix without requiring any unrealistic coefficient restrictions and provides a parsimonious description of the conditional variance-covariance matrix by jointly modeling the conditional mean and variance functions. / Ph. D.

This dissertation is comprised of four chapters. Chapter 1 provides an introduction to<br />Economic application of time series analysis and discusses the topics covered in each of the following chapters along with some main results therein. <br />    In Chapter 2, I construct a measure of information asymmetry in the financial markets in U.S., by estimating an index of agency cost pertaining to U.S. manufacturing firms. The cyclical behavior of the unobservable agency cost is derived by a novel application of the Kalman filter within a Bayesian framework, using firm level data from 1984-2006. The preliminary results provide support to the financial accelerator mechanism in the business cycle literature. <br />    In Chapter 3, I show that people\'s expectation of uncertainty in financial markets is a significant factor impacting short-term real exchange rate movements. Specifically, a sudden increase in expectation of stock market volatility in a low interest rate country tends to appreciate their currencies against high interest rate currencies. I construct a measure of conditional expected uncertainty from volatility of returns of the dominant portfolio (indices) of 7 industrialized countries. I identify uncertainty shocks and its impact on dollar real exchange rate, and explain my results in the context of currency carry trade.<br />    Chapter 4 of my dissertation documents the presence of significant non-linearity in the deficit-interest rate relationship in the U.S. economy. Using an asymptotic threshold test as per Hansen (2000), I find strong evidence for threshold effects in the impact of expected deficit on future long-term interest rates. I find that a percentage point increase in expected deficit in a regime where the expected deficit/GDP ratio is above 1.8 percent (the estimated threshold value) increases future nominal long term interest rates by 29-30 basis point, and a "news shock" to expectation of future deficit increases future real long term interest rates by 12-18 basis points. When expected deficit/GDP ratio is below 1.8 percent, an increase in expected deficit has no impact on future long-term interest rates. <br /> / Ph. D.

Thesis advisor: Pablo Guerron-Quintana / The dissertation consists of three independent chapters that study nonlinear effects in international finance and macroeconomics. The implications of presence of nonlinear effects are examined both in the context of a puzzle in international financial markets, a constrained policy within a closed economy, and are also ap- proached as a general problem in macro and macroeconometric modeling. I quantify the role of nonlinear effects in these contexts, and make a case for the application of nonlinear modeling techniques.The first chapter of the dissertation titled “Sovereign Default Risk and Currency Returns” is solo-authored. Many currencies exhibit non-zero average returns with respect to US dollar, in an apparent violation of textbook uncovered and covered interest parities. I first show that in the cross-section of countries foreign currency returns are positively related to the sovereign default risk, and then reconcile this finding with the standard theory via the “peso problem”. Market players collect premium for bearing the risk of sharp devaluation in case of default. Since defaults are rare in the data, default premium manifests itself in higher currency returns. To formalize the link between default risk and currency returns, I discipline quantitatively a model “with default” based on Arellano (2008) for a set of developing countries. I then use the implications of this model to construct an econometric model for cross-section of currency returns that I estimate using extended Fama and MacBeth (1973) method. I find strong evidence supporting the “peso problem” explanation: credit default swaps’ spreads serving as proxy for the risk of default explain around 25% of the cross-country variation of average currency returns. I also estimate that the market participants expect a 50% depreciation of national currency upon default. The second chapter is titled “Nonlinear Dynamic Factor Model in Application to Financial and Macroeconomic data”, and is joint work with Pablo Guerron- Quintana and Molin Zhong. Through the lens of a nonlinear dynamic factor model, we study the role of exogenous shocks and internal propagation forces in driving the fluctuations of macroeconomic and financial data. The proposed model 1) allows for nonlinear dynamics in the state and measurement equations; 2) can generate asymmetric, state-dependent, and size-dependent responses of observables to shocks; 3) and can produce time-varying volatility and asymmetric tail risks in predictive distributions. We find evidence in favor of the nonlinear factor model over its linear counterpart in applications that include interest rates with zero lower bounds, credit default swap spreads for European countries, and nonfinancial cor- porate credit default swap spreads in the U.S. We extract a shadow interest rate comparable to those in the literature. The results hint to an important role for a nonlinear internal propagation element to exogenous shocks during periods of tur- bulence such as the European debt crisis and the Great Recession. This nonlinear term allows the model to forecast better during the early stages of the Covid-19 crisis. The third chapter is titled “Local Government spending and business cycle” and is based on a solo-authored paper. Local government revenues and spending in the United States are procyclical due to constitutional constraints of states and municipalities. As a result, the local government policies can act as amplifiers of the business cycle. This paper introduces fiscal policy conducted by local governments to an otherwise standard New Keynesian closed economy model to assess quantitatively the contribution of spending policies into the business cycle. The procyclical nature of local government spending generates an amplification mechanism that accounts for around 15% of fluctuations in output and hours worked. / Thesis (PhD) — Boston College, 2022. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

This empirical study uses stochastic coefficients econometric modeling to forecast real exchange rate volatility and examine how expected and unexpected volatility affect bilateral trade flows of certain steel products between Canada, Mexico and the United States using monthly data for the seven-year period 1996-2002. The results of the model indicate that the effects of exchange rate volatility on bilateral trade flows for this sector are relatively minor, where sustained changes in the spot exchange rate, sectoral economic growth, and the price of goods being traded all exert more significant influence on trade levels than exchange rate volatility. However, the model results also tend to indicate that as exchange rate volatility increases, the well-developed U.S.-Canadian forward currency exchange market may present economic agents with profit opportunities through risk-portfolio diversification, resulting in a positive correlation between volatility and trade. For the less-developed U.S.-Mexican forward currency market, the model results indicate that the relationship between trade and volatility, both expected and unexpected, is weak and predominantly negative. / Master of Arts

by Yan Yuk Fung. / Thesis (M.B.A.)--Chinese University of Hong Kong, 1996. / Includes bibliographical references (leaves 41-42). / ABSTRACT --- p.i / TABLE OF CONTENTS --- p.ii / LIST OF ILLUSTRATIONS --- p.iv / ACKNOWLEDGMENT --- p.v / Chapter / Chapter I. --- INTRODUCTION AND METHODOLOGY --- p.1 / Chapter II. --- BENEFITS AND TYPES OF CONVERTIBILITY --- p.3 / Economic Benefits --- p.3 / Current Account Convertibility --- p.4 / Capital Account Convertibility --- p.5 / Chapter III. --- TRENDS OF BALANCE OF PAYMENTS IN CHINA --- p.7 / Characterics --- p.7 / Trend of Current Account Balance --- p.8 / Trend of Capital Account Balance --- p.9 / Cyclical Nature of Balance of Payments --- p.10 / Chapter IV. --- EVOLUTION OF FOREIGN EXCHANGE REGIME SINCE 1978 --- p.12 / Trade Liberalization --- p.12 / Control on Current Account Transactions --- p.13 / Foreign Exchange Retention System and Swap Centres --- p.14 / Chapter V. --- DEVELOPMENT OF CONVERTIBILITY IN 1994 --- p.16 / Achieved Convertibility on Trade Related Transactions --- p.16 / China's Choice of A Managed Floating Rate Regime --- p.18 / Chapter VI. --- CONDITIONS FOR CONVERTIBILITY --- p.21 / Stable Domestic Price --- p.21 / Favourable Balance of Payment --- p.22 / Sufficient Foreign Reserve --- p.23 / Exchange Rate Stability --- p.24 / Liberalization Measures on Service Transactions Implemented in 1996 --- p.24 / Chapter VII. --- RISKS OF CONVERTIBILITY --- p.26 / Peso Depreciation in Mexico --- p.26 / Export Slowing Down in China --- p.27 / Cumulative Inflation --- p.28 / Budget Deficit --- p.29 / Risk of Import Surging with China Entering WTO --- p.30 / Foreign Direct Investment Slowing Down --- p.30 / Political Risks within China and Across the Formosa Strait --- p.31 / Chapter VIII. --- POLICY PRESCRIPTIONS --- p.33 / Maintain Balance of Payments --- p.33 / Fiscal & Monetary Discipline --- p.34 / Improve Efficiency of Foreign Exchange Market --- p.35 / Strengthen Economic and Financial Reforms --- p.35 / Avoid Premature Capital Account Convertibility --- p.36 / Chapter IX. --- CONCLUSION --- p.38 / RMB Full Current Account Convertibility Achievable Before 2000 --- p.38 / Business Implications --- p.39 / BIBLIOGRAPHY --- p.41

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Thesis (Ph. D.)--University of Wisconsin, Milwaukee, 2005. / Vita. Includes bibliographical references (leaves 64-68).