Exchange rate economics has achieved substantial development in the past few decades. Despite extensive research, a large number of unresolved problems remain in the exchange rate debate. This dissertation studied three puzzling issues aiming to improve our understanding of exchange rate behavior. Chapter Two used advanced econometric techniques to model and forecast exchange rate dynamics. Chapter Three and Chapter Four studied issues related to exchange rates using the theory of New Open Economy Macroeconomics. Chapter Two empirically examined the short-run forecastability of nominal exchange rates. It analyzed important empirical regularities in daily exchange rates. Through a series of hypothesis tests, a best-fitting fractionally integrated GARCH model with skewed student-t error distribution was identified. The forecasting performance of the model was compared with that of a random walk model. Results supported the contention that nominal exchange rates seem to be unpredictable over the short run in the sense that the best-fitting model cannot beat the random walk model in forecasting exchange rate movements. Chapter Three assessed the ability of dynamic general-equilibrium sticky-price monetary models to generate volatile foreign exchange risk premia. It developed a tractable two-country model where agents face a cash-in-advance constraint and set prices to the local market; the exogenous money supply process exhibits time-varying volatility. The model yielded approximate closed form solutions for risk premia and real exchange rates. Numerical results provided quantitative evidence that volatile risk premia can endogenously arise in a new open economy macroeconomic model. Thus, the model had potential to rationalize the Uncovered Interest Parity Puzzle. Chapter Four sought to resolve the consumption-real exchange rate anomaly, which refers to the inability of most international macro models to generate negative cross-correlations between real exchange rates and relative consumption across two countries as observed in the data. While maintaining the assumption of complete asset markets, this chapter introduced endogenously segmented asset markets into a dynamic sticky-price monetary model. Simulation results showed that such a model could replicate the stylized fact that real exchange rates tend to move in an opposite direction with respect to relative consumption.

Do renminbi (RMB) exchange rate fluctuations affect cross-border M&A activities of enterprises at the micro level? This paper centers on this major issue, and we study and analyze the impacts of RMB internationalization on the magnitude and success of cross-border M&As. We investigate the impacts of exchange rate changes on the magnitude and success of enterprise-level cross-border M&As by developing nominal exchange rate (NER) and real exchange rate (RER) volatility indicators using data from the Thomson Financial SDC Platinum Merger and Acquisitions database. By applying a variety of indicators and subsample estimates in the study, we find that exchange rate volatility (of either NER or RER) is significantly negatively correlated with enterprise-level cross-border M&As, suggesting that RMB exchange rate movements deter cross-border M&As to some extent; fluctuations in RMB exchange rate have a significant negative impact on the success of cross-border M&As, and the exchange rate risk induced by exchange rate changes increases the risk of cross-border M&As; meanwhile, exchange rate fluctuations have a significant inhibitory effect on conglomerate M&As in addition to horizontal cross-border M&As. In addition, exchange rate fluctuations have a significant inhibitory effect on the profit-oriented cross-border M&As of enterprises in non-state-owned-or-controlled industries. Therefore, we should take prudent actions to prevent the impacts of RMB exchange rate movements on cross-border M&As, actively tap the potential of bilateral investment treaties in securing cross-border M&As, promote coordination between RMB exchange rate regulation iimechanisms and the “go global” strategy, and improve the level of internationalization and competitiveness of Chinese enterprises. / Business Administration/Finance

The objective of this thesis is to examine real exchange rate volatility, with a particular focus on investigating the causes of exchange rate jumps. While the predominant approach in the literature is to examine the interaction between nominal rigidities and nominal shocks, this thesis examines the volatility that arises from real rigidities and shocks. Trying to better understand the transmission of real shocks to the exchange rate is a worthwhile task, given the substantial evidence that these shocks and rigidities are important for explaining other economic fluctuations. This thesis develops theoretical models that examine the contributions of specific real rigidities to exchange rate volatility. Chapter 1 introduces our baseline specification - a frictionless model, with the exception of capital adjustment costs. This baseline generates very mild exchange rate fluctuations. Additional rigidities are required to generate volatility of the magnitude that is typically observed. Chapter 2 finds that introducing imperfect asset substitutability - specifically, home asset bias - goes a little towards achieving this. When investors are biased, the exchange rate must adjust by more to equilibrate asset markets. This greater burden of adjustment on the exchange rate along the short run path typically translates to larger jumps after shocks. Similarly, Chapter 3 shows that augmenting the baseline with banks and financial frictions raises exchange rate volatility. The key point is that, in the presence of financial frictions, there is a risk premium that widens after negative shocks, increasing the required adjustment of the exchange rate. A fourth chapter extends Chapter 3 and shows that unconventional credit policy, while beneficial in some respects, nonetheless entails nontrivial costs because it invites moral hazard by encouraging banks to be more highly leveraged, which increases exchange rate and consumption volatility. So, the overall message is that, in the presence of plausible real frictions - including (i) capital adjustment costs, (ii) imperfect asset substitutability, and (iii) financial frictions - real shocks can generate a plausibly significant degree of real exchange rate volatility. This thus posits an additional explanation of exchange rate jumps that complements the predominantly monetary literature.

Differences in price levels as well as inflation rates among countries have been subject of discussion for a long time. More than the actual levels, however, the question of determinants of price levels in time and a possible convergence is key for the new member states with respect to the Maastricht criteria. The dynamics of price levels is crucial, and many suggestions have been put forward to explain the observed trends and changes. This thesis focuses on the determinants of relative price level, and hence real exchange rate, developments in the new member states of the EU and employs a regression analysis to examine their change in time. As most of the countries in focus are transition economies, structural variables are also included among the independent variables. We find that the Balassa- Samuelson effect is key to explaining real exchange rate developments as the effect of productivity differential has been significant over the whole period examined. However, in the recent years, marked by the onset of the crisis, other factors, such as the structure of trade and Euro area membership, have become more prominent.

In literature it has been stated that in times of low capital barriers policies can impact real exchange rates (RERs) and, it has been shown that RERs influence foreign direct investment (FDI). As inward FDI is a growth stimulating factor for the German economy and as more than a third of inward FDI stems from countries in the European Union (EU), this study investigates the RER-FDI link between Germany and seven EU countries. The impact of bilateral RERs between Germany and seven EU countries on German net FDI inflows is examined for the period 1974-2018. Further, it is investigated how the euro introduction in 1999 affected the RER-FDI links. Using Ordinary Least Squares models it is found that in the pre-euro period a real German currency appreciation led to decreases in net FDI from most economies in scope. This negative RER-FDI link endures for the non-euro countries Sweden, Denmark, and the United Kingdom after the euro introduction. France, Italy, and Spain, euro countries, are subject to the euro-effect: the negative RER-FDI link changes to a positive link with the euro introduction. This phenomenon indicates an altering investment behavior. The results are strengthened by a panel estimation as robustness check. As the euro-effect was not discovered in previous studies nor is a theory established explaining the altering investment behavior of euro firms, this thesis suggests an alternative explanation.

A segmentação dos mercados internacionais permite a existência do pricing-to-market, hipótese inicialmente formulada por Krugman (1986). O primeiro objetivo deste trabalho foi testar o pricing-to-market realizado pelos exportadores brasileiros entre 1999 e 2012 utilizando dados para 26 setores industriais. À partir do modelo de Marston (1990), a sua estratégia de identificação adotada foi expandida para ser utilizada em dados em painel e considerar a possibilidade de cointegração entre as variáveis. Modelos de correção de erros em painel foram estimados utilizando diferentes técnicas de estimação, o efeito médio da taxa real de câmbio no longo prazo é de 0.673, ou seja, um aumento de 1% na taxa real de câmbio leva a um aumento de aproximadamente 0.07% nos preços relativos. No curto prazo, o efeito médio da taxa real de câmbio é de 0.233 nos preços relativos. Então há um efeito maior da taxa real de câmbio no longo prazo que no curto prazo. Após encontrar evidências de pricing-to-market nas exportações brasileiras, este estudo testou a assimetria do pricing-to-market através do modelo de painel com parâmetros limiares proposto por Hansen (1999). Foi estudado se a assimetria ou a volatilidade cambial possuem efeitos no nível de pricing-to-market realizado. As evidências encontradas mostram que a taxa real de câmbio possui efeitos assimétricos, há um aumento do pricing-to-market com a desvalorização cambial. / The segmentation of international markets allows the pricing-to-market, hypothesis initially defined by Krugman (1986). The first objective of this work is to test the pricing-to-market held by Brazilian exporters between 1999 and 2012 using data panel for 26 industrial sectors. Using the model proposed by Marston (1990), his identification strategy has been expanded from and consider the possibility of cointegration between the variables. Panel error correction models were estimated using differents estimation techniques, the average effect of the real exchange rate in the long run is 0.673, i.e. an increase of 1% in the real exchange rate leads to an increase of 0.07% in relative prices. In the short term, the average effect of the real exchange rate is 0.233 in relative prices. So there is a higher effect of real exchange rate in the long run than the in the short term. After finding evidence of the Brazilian pricing-to-market, this study tested the asymetric pricingto-market using the panel threshold model proposed by Hansen (1999). It was examined whether the exchange rate asymmetry or the volatility have effects on the level of pricing-tomarket. The evidences shows the real exchange rate has asymmetric effects, there is an increase of brazilian pricing-to-market associated with a depreciated exchange rate.

Diese Dissertation analysiert reale Wechselkursdynamiken und die Rolle von Fiskalpolitik in einer Währungsunion, die sich aus zwei Regionen zusammensetzt. Drei Forschungsfragen werden adressiert: Welche politischen Regime führen in Abwesenheit von Handel zu determinierten Gleichgewichten? Welche Rolle spielt Arbeitsmobilität über Produktionssektoren hinweg innerhalb einer Volkswirtschaft für die Dynamik des realen Wechselkurses? Und sollte nationale Fiskalpolitik auf diese Änderungen des realen Wechselkurses, d.h. auf Inflationsdifferenziale, reagieren, um den inländischen Wohlstand zu erhöhen? Das erste Essay stellt fest, dass bei autarken Mitgliedsländern eine Geldpolitik nach Taylor-Prinzip nicht ausreicht, um ein Gleichgewicht zu determinieren, wenn sie nicht mit einer "aktiven" Fiskalpolitik gekoppelt ist. Das Modell zeigt, dass fiskalische Schocks aus der Volkswirtschaft mit einer aktiven Fiskalpolitik die Inlandsinflation beeinflussen, sich aber auch auf die Volkswirtschaft auswirken, deren fiskalische Haltung passiv ist. Das zweite Essay zeigt, dass die Annahme von perfekter Arbeitsmobilität über Produktionssektoren hinweg die Fähigkeit des Modells erheblich beeinträchtigt, ausgiebige Dynamiken des realen Wechselkurses nach sektorspezifischen Schocks zu generieren. In einer empirischen Anwendung zerlege ich die Treiber der spanischen realen Wechselkursvariabilität und zeige, dass die Schätzung der Arbeitsmobilität die Modellanpassung an die Daten erheblich verbessert. Der dritte Aufsatz erwägt reale Wechselkursschwankungen als Zielvariable für nationale Fiskalpolitiken in einer Währungsunion. Eine Wohlfahrtsanalyse, die Konsumäquivalente berechnet, quantifiziert die Vorteile von Steuerregeln, die auf das inländische Inflationsdifferenzial reagieren. Sie findet großen Spielraum für wohlfahrtsfördernde, fiskalische Interventionen im Rahmen von budgetneutralen Regeln für Konsum- und Lohnertragssteuern. / This dissertation analyses real exchange rate dynamics and the role of fiscal policy within the setting of a monetary union consisting of two regions. It seeks to address three research questions: What are the policy regimes that yield determinate equilibria in the absence of trade? What is the role of labour mobility across production sectors within an economy in real exchange rate dynamics? And should a national fiscal authority respond to these changes in the real exchange rate, i.e. the domestic inflation differential, to improve domestic welfare? The first essay finds that with autarkic member countries, a monetary authority following the Taylor principle is insufficient to render an equilibrium determinate if it is not coupled with exactly one `active' fiscal policy. The model shows that fiscal shocks originating in the economy with an active fiscal stance affect domestic inflation but also spill over into the economy whose fiscal policy stance is passive. The second essay shows that assuming perfect labour mobility across production sectors significantly hampers the model's ability to generate rich real exchange rate dynamics following sector-specific shocks. In an empirical application, I decompose the drivers of Spanish real exchange rate variability and show that estimating the degree of labour mobility considerably improves the model's fit to the data. The third essay considers real exchange rate variability as a fiscal target for national fiscal authorities in a monetary union. A welfare analysis that calculates consumption equivalents quantifies the benefits of fiscal rules that are responsive to the domestic inflation differential. It finds a large scope for welfare-enhancing fiscal intervention in the set of budget-neutral rules which rely on consumption and labour income taxes.

No description available.

A presente dissertação de conclusão de mestrado tem por objetivo contribuir com a literatura existente que versa acerca da estimação da Taxa de Câmbio Real (RER) através de fundamentos econômicos. O objetivo deste trabalho é utilizar o instrumental teórico de modelos com mudança de regime (Markov Switching) aplicado sobre os fundamentos que determinam a RER em um modelo de Cointegração. O modelo teórico utilizado para a estimação foi o proposto por Montiel (1999), modelo este que é mais indicado para países em desenvolvimento, para o período de 1994 até 2005. Os resultados obtidos na estimação da Taxa de Câmbio Real foram contundentes em demonstrar que havia três regimes distintos (definidos como sendo regimes de estabilidade, transição e risco extremo) na determinação da RER, indicando que havia uma relação não linear entre está última e os fundamentos econômicos. Verificou-se ainda que a magnitude e os sinais dos parâmetros dos fundamentos estimados para cada regime distinto eram diferentes, sugerindo que a RER reagia de maneira distinta a choques nos fundamentos econômicos de acordo com o regime que a economia se encontrava. Os coeficientes obtidos nas estimações foram utilizados para estimar uma Taxa de Câmbio de Equilíbrio, sendo possível identificar os desvios (misalignments) da taxa observa com relação à taxa estimada a parti r de 1994. / The present dissertation aims to contribute with the studies over Real Exchange Rate in Brazil and the impact of the economic fundamentals on its determination. The main purpose of the dissertation is to use the Markov Switching framework over the fundamentals in the estimation of the Real exchange Rate to the period between 1994 and 2005, using a model based on Montiel (1999), which is more appropriate to developing countries. The results show strong evidences that there are different regimes (interpreted as stability, transition and extremely risk), which can be understood as a non linear relationship between the Real Exchange Rate and the fundamentals. In other words, it was possible to show that the impact of the fundamentals over the Real Exchange Rate is submitted to three different regimes, where the magnitude and signal of their coefficients are different in each regime. The parameters of the model were used to estimate an Equilibrium Real Exchange Rate, which was possible to demonstrate the misalignments after 1994.

Submitted by Pedro Caratori (pedrocaratori@gmail.com) on 2012-02-15T11:21:56Z No. of bitstreams: 1 Tese_Final_PEDRO_FINAL.pdf: 854760 bytes, checksum: 84c4b87894fb2fb47ea6906278c0e42b (MD5) / Approved for entry into archive by Marcia Bacha (marcia.bacha@fgv.br) on 2012-03-14T14:33:30Z (GMT) No. of bitstreams: 1 Tese_Final_PEDRO_FINAL.pdf: 854760 bytes, checksum: 84c4b87894fb2fb47ea6906278c0e42b (MD5) / Made available in DSpace on 2012-03-14T14:43:04Z (GMT). No. of bitstreams: 1 Tese_Final_PEDRO_FINAL.pdf: 854760 bytes, checksum: 84c4b87894fb2fb47ea6906278c0e42b (MD5) Previous issue date: 2011-05-30 / O objetivo do presente trabalho é investigar estatisticamente a influência de determinantes econômicos, tais como, PIB per capita, câmbio real, escolaridade, abertura comercial, peso do governo no produto e população, na perda de peso do setor industrial no produto. A regressão foi estruturada na forma de painel, com dimensão temporal, para capturar a evolução no tempo, e com 130 países, de forma a garantir heterogeneidade à amostra. O resultado indica uma forte influência do produto per capita na evolução do tamanho relativo do setor manufatureiro, o que reforça o ponto da transformação estrutural e estabelece uma relação positiva entre apreciação da taxa de câmbio real e o peso da indústria. / This paper aims to investigate statistically the influence of economic indicators, such as, GDP per capita, real exchange rate, education, trade openness, government share of the GDP and population on the decline of the industrial sector as percentage of the GDP. The regression was structured in the form of a panel with time dimension to capture the evolution in time e with 130 countries to ensure the heterogeneity of the sample. The results point to a strong influence of the GDP per capita in the evolution of the relative size of the manufacturing sector, reassuring the idea of structural transformation, as well as they establish a positive relationship between the real exchange rate appreciation and the percentage of the industrial sector in the total product.