Introduction – The introduction gives background to exchange rate volatility and the negative effects on economic growth that emerges when the exchange rate volatility is high.  Exchange rate volatility can affect economic growth in different ways such as establishing trade barriers or investment uncertainty. Previous studies have become quite outdated and the studies that have focused around the EMU have only compared smaller economies, hence this paper investigates the topic for developed economies and with new up-to-date data. The paper also examines two different types of exchange rate volatility, effective nominal exchange rate volatility and nominal exchange rate volatility to test if the choice of exchange rate volatility has an impact on the results. The sample for the paper contains the 36 OECD countries and the time period is 2000-2016.   Purpose – The purpose of this study is to explore how exchange rate volatility affects growth for the OECD countries. The paper also looks at what the effect of adopting the Euro as a primary currency has been for the countries in the OECD sample when looking at the exchange rate volatility and economic growth. Method – This study is conducted with a quantitative methodology, investigating a sample of 36 countries over 17 time periods from 2000-2016. The effect from exchange rate volatility on growth is analyzed through a content analysis and four panel-data regressions. This study also introduces a causality test to see if the exchange rate affects the economic growth or if economic growth affects the exchange rate volatility. Conclusion – The paper finds that both measures of exchange rate volatility have a negative effect on economic growth. There is also evidence that adopting the Euro as your currency for the time period has been negative for economic growth. Regarding the causality between exchange rate volatility and economic growth the paper finds evidence for a bidirectional causality, meaning that exchange rate volatility affects economic growth and economic growth affects exchange rate volatility.

An overview of the theoretical literature for the last two decades suggests that there is no clear-cut relationship one can pin down between exchange rate volatility and trade flows. Analytical results are based on specific assumptions and only hold in certain cases. Especially, the impact of exchange rate volatility on export and import activity investigated separately leads also to dissimilar conclusions among countries studied. The general presumption is that an increase in exchange rate volatility will have an adverse effect on trade flows and consequently, the overall heath of the world economy. However, neither theoretical models nor empirical studies provide us with a definitive answer, leaving obtained results highly ambiguous and inconsistent (Baum and Caglayan, 2006). We purposed to empirically investigate trade effects of exchange rate fluctuations in Sweden from the perspective of export and import in this research. The data comprises period from January 1993 to December 2006, where export and import volumes are considered from the point of their determinants, including exchange rate volatility, which has been measured through EGARCH model. The results for the case of Sweden show that short run dynamics of volatility negatively associated with both export and import, whereas considered from the case of previous period volatility it exhibits positive relationship. These results are consistent with the most findings of prior studies, where the relationship remained ambiguous.

This thesis presents an empirical investigation of the behaviour of financial markets and also the relationship on the real economy. The thesis will focus on Ireland, a small open economy with increased dependence on international developments. Two important aspects of the Irish economy, the term structure of interest rates and impact of exchange rate volatility, will be analysed. The motivation for the analysis of the term structure of interest rates in part I is two fold. Central banks can control very short-term interest rates, but of course the real economy will only really be affected by the long-term interest rate. Therefore the transmission mechanism from monetary policy to the real economy will depend on the relationship between short-term interest rates and long-term interest rates, i.e. the term structure of interest rates. The second important issue is that of market efficiency, and whether asset prices and returns are correctly valued by the market. A number of different interest rate maturities will be used to test the Expectations Hypothesis (EH) of term structure. The EH will also be tested assuming constant and time varying term premia. The results give support for the EH, and fmd no evidence of a time varying term premium. Given the recent extraordinary growth in the share of Irish exports in GDP, the impact of exchange rate volatility on Irish exports is analysed in part 2. The moti vation behind part 2 is to test whether the resulting monetary union will lead to a rise in exports, as a result of the end of exchange rate risk. Using the cointegration-ECM methodology I fmd that in the long-run there is no significant effect on Irish exports to the UK, while there is actually a positive impact on exports to European countries (UK included). I tentatively conclude that in the long-run the involvement in a single European currency will have no impact on trade.

Includes bibliographical references / This thesis focuses on the effects and causes of exchange rate volatility in South Africa. These issues are analysed in three stand-alone but related papers. The first paper (Chapter 2) investigates the impact of real exchange rate volatility on employment growth in the manufacturing sector. The study contributes to the literature on the employment effects of exchange rate volatility in emerging markets given limited studies. This is done by using the Autoregressive Distributed Lag (ARDL) counteraction approach which is able to estimate an error correction form of the model for the variables under investigation. This enables one to analyse the relationship between exchange rate volatility and employment growth. The advantage of this approach is that it performs better in small samples and works well even when the underlying variables are integrated of different orders. Employing quarterly time series data for the period 1995 . 2010, the analysis shows that real exchange rate volatility has a significant contractionary effect on manufacturing employment growth. The study also provides evidence that exchange rate level, output, wages and interest rates have significant effects on manufacturing employment growth. The results suggest that the government can reduce the adverse effects of exchange rate volatility on manufacturing by adopting macroeconomic policies that minimise exchange rate volatility and policies that promote employment creation, for instance, less restrictive policies given that the results show that an increase in interest rates leads to a decline in employment. Coming up with macroeconomic policies that minimise exchange rate volatility requires the knowledge of the causes of exchange rate volatility. As a result, the second paper (Chapter 3) investigates the determinants of exchange rate volatility in South Africa. Few studies investigate the determinants of rand volatility (Arezki, Dumitrescu, Freytag & Quintyn 2014, Farrell 2001). This study contributes to the literature by finding the sources of rand volatility using output volatility, money supply volatility, foreign reverses volatility, commodity price volatility, openness and a dummy for capital account liberalisation as explanatory variables. This is done using GARCH models for the period 1986- 2013 employing monthly time series data. The advantage of GARCH models is that they are able to model and forecast time-varying variance given that the exchange rate behaves similarly to other asset prices, for example, stock prices. The study tests the hypothesis that economic openness leads to a reduction in exchange rate volatility following Hau's (2002) modifications of the New Open Macroeconomics model of Obstfeld & Rogoff (1995, 1996). South Africa is a good case study following the liberalisation of the capital account in March 1995. The results show that switching to a coating exchange rate regime has a significant positive effect on exchange rate volatility. That is, it increases exchange rate volatility. The results also show that trade openness reduces exchange rate volatility using the bilateral exchange rate. The results also show that output, commodity prices, money supply and foreign reserves volatilities significantly influences exchange rate volatility. The study also shows that real factors (commodity prices, output and openness) have relatively larger effects on exchange rate volatility compared to monetary factors. The third paper (Chapter 4) analyses the short run behaviour of the South African rand using daily data. The study contributes to the literature on the causes of exchange rate movements in several ways. First, it uses an event studies approach a la Campbell, Lo & MacKinlay (1997) to answer two research questions. First, what is the impact of South Africa's monetary policy announcements on the rand? Second, what is the impact of South African political events on the rand? The advantage of event studies is that they are able to quantify systematically the abnormal or unexpected impact of an economic or political event on asset prices like the exchange rate. Second, the study focuses on an emerging market given that most studies have mainly focused on developed economies. Third, few studies that use event studies in South Africa focus on stock market reaction to announcements. The results find 8 out of 12 significant cumulative abnormal returns for monetary policy announcements. This suggests that the rand is not only influenced by demand and supply flows but also by news. The study also finds significant cumulative abnormal returns for all the three exchange rates following the Marikana massacre on 16 August 2012 and the release of Nelson Mandela banknotes on 6 November 2012. The ANC elective conference only has significant cumulative abnormal returns using the Rand/US dollar in 2007 and 2012.

In this thesis we examine the effect of foreign exchange interventions in small open economy, focusing on the Czech experience. In the first part we model volatility development before and after the intervention using GARCH model. In the second part we estimate relationship between macroeconomical variables using vector autoregressive model. In this part we estimate impulse response function of exchange rate and inflation. In second part of VAR modeling we provide counterfactual analysis, which compare actual development of variables with alternative scenario in which the interventions would not happen . Our results suggest that the interventions is associated with few months delayed decrease in volatility. Base on scenario analysis the interventions increased inflation by approximately 1.5 % and without the intervention the economy would in deflation around -1 % nowadays. KEYWORDS: Vector autoregression, Volatility modelling, Monetary policy, Intervention Author's e-mail: jantimko16@gmail.com Supervisor's e-mail: tomas.holub@cnb.cz

Thesis (M.M. (Finance & Investment))--University of the Witwatersrand, Faculty of Commerce, Law and Management, Graduate School of Business Administration, 2013. / We analyse the role of financial and macro-economic variables in the conduct of monetary policy, particularly the role played by monetary policy in the house price boom of the early 2000s. The analysis is performed in the setup of a New Keynesian open economy. We estimate a five variable Recursive Vector Autoregressive model consisting of the short term interest rate, house prices, inflation, output and the exchange rate. Quarterly data from 1994 to 2011 was inputted in Eviews (6) to run the model. We find a significant causal relationship between the short term interest rate and house prices; the impulse response results show an instant response of house prices to a shock in monetary policy. We conclude that the house price boom of the early 2000s was partially attributed to an overreaction to a shock in monetary policy. We also find evidence of exchange rate pass- through to the consumer price index as in (Mishkin, 2008).We conclude that perhaps monetary policy should take cognisance of asset price fluctuations and exchange rate volatility in determining the policy instrument

Thesis (M.M. (Finance & Investment))--University of the Witwatersrand, Faculty of Commerce, Law and Management, Graduate School of Business Administration, 2015. / e period 2000:q1 – 2014:q3 in South Africa. In addition, the paper examines the impact that the exchange rate volatility exerts on the different forms of capital flows. Consequently, the aim of the study is to examine whether the volatility in the exchange rate is a significant determinant of foreign investor capital into South African markets as well as to empirically establish the dynamic relationship that can be observed between capital flows and exchange rate volatility. A trade weighted exchange rate was constructed from which the conditional variance GARCH (1,1) model is applied to estimate exchange rate volatility. The findings from the multiple regression analysis reveal that exchange rate volatility has a statistically significant negative impact on the aggregated capital flows to South Africa. Using the bi-variate vector autoregressions (VARs), the Granger-causality test, impulse response and variance decomposition, the results show there is a dynamic interrelationship between exchange rate volatility and the aggregated and disaggregated capital flows. Furthermore, the VAR specifications results reveal that portfolio flows exhibits a strong bi-directional causality with exchange rate volatility as well as explaining a significant percentage of innovations in exchange rate volatility. This suggests that fluctuations in the exchange rate can be explained by portfolio flows into South Africa’s capital markets. The recommendations for authorities resulting from the findings include, a monetary policy that mitigates the rand exchange rate volatility in an effort to attenuate the adverse subduing effects it has on capital flows in South Africa. Further broadening financial instruments and derivatives available for investors to hedge against exchange rate volatility and a meticulous management of portfolio flows is imperative to ensure prevention of its destabilizing effect on the exchange rate.

The purpose of this thesis is to examine whether the exchange rate volatility has an impact on Swedish exports. This relationship has been tested in several studies but no consistent result has been found. It is therefore an interesting subject to investigate further and it has not been thoroughly tested for Sweden using aggregated data. Since the exchange rate vola-tility may have an effect on exports, and therefore on the whole economy, the effect can support a certain exchange rate regime. All the data used in this thesis is based on the ag-gregated data for Sweden and the Euro zone between the years 1993 and 2006. The method chosen is a statistical analysis using regressions. Three variables other than ex-change rate volatility were included when conducting the regressions explaining Swedish exports and these are: the real effective exchange rate index, the industrial production in Sweden (“push” factor) and the import from the Euro Zone (“pull” factor). The overall conclusion found was that the industrial production in Sweden, the real effective exchange rate index, the time and lagged values of the export influence the export. There was no evi-dence found that the exchange rate volatility influences the exports for Sweden.

This dissertation consists of three independent essays in Macroeconomics. The first essay analyzes monetary coordination between currency areas. It is shown that search frictions can generate the deviations from the law of one price and that each country is tempted to exploit these deviations by inflation. Monetary coordination eliminates the inefficiency caused by inflation. The welfare gains from coordination increase when the two economies become more integrated. In contrast to traditional models, the need for coordination exists even after each country is allowed to directly tax foreign holdings of its currency. The second essay studies the behavior of exchange rates in an environment with search frictions. In contrast to traditional models, even without any nominal rigidity, the model can generate enough volatility of exchange rates found in the data. The changes in the behavior of exchange rates under different regimes are also examined in this essay. The model shows a sharp increase in the volatility of exchange rates when moving from a pegged to a floating exchange regime, while there is no such systematic change in fluctuations of output or consumption. Moreover, the co-movements of output and consumption across countries are higher under a fixed rate regime than under a flexible rate regime. These results are consistent with empirical findings. The final essay focuses on the competition between groups of allied firms. In the essay we propose a model of group fitness and develop an approach to evaluate the fitness of groups and the utility of their member firms. A group has high fitness if member firms have four features: (i) high capacity, (ii) being embedded in dense relationships, (iii) holding complementary resources and (iv) having limited competition and conflict. We illustrate the effectiveness of our model and methodology by applying it to the airline groups between 1997 and 2002. By examining what really happened to the airline groups afterwards, we found that the predictions based on the comparison between the fitness scores of actual groups formed and those of the corresponding population constructed are reasonably accurate, and that the implications based on the ranking of individual firm utility within each group are generally supported.

This dissertation consists of three independent essays in Macroeconomics. The first essay analyzes monetary coordination between currency areas. It is shown that search frictions can generate the deviations from the law of one price and that each country is tempted to exploit these deviations by inflation. Monetary coordination eliminates the inefficiency caused by inflation. The welfare gains from coordination increase when the two economies become more integrated. In contrast to traditional models, the need for coordination exists even after each country is allowed to directly tax foreign holdings of its currency. The second essay studies the behavior of exchange rates in an environment with search frictions. In contrast to traditional models, even without any nominal rigidity, the model can generate enough volatility of exchange rates found in the data. The changes in the behavior of exchange rates under different regimes are also examined in this essay. The model shows a sharp increase in the volatility of exchange rates when moving from a pegged to a floating exchange regime, while there is no such systematic change in fluctuations of output or consumption. Moreover, the co-movements of output and consumption across countries are higher under a fixed rate regime than under a flexible rate regime. These results are consistent with empirical findings. The final essay focuses on the competition between groups of allied firms. In the essay we propose a model of group fitness and develop an approach to evaluate the fitness of groups and the utility of their member firms. A group has high fitness if member firms have four features: (i) high capacity, (ii) being embedded in dense relationships, (iii) holding complementary resources and (iv) having limited competition and conflict. We illustrate the effectiveness of our model and methodology by applying it to the airline groups between 1997 and 2002. By examining what really happened to the airline groups afterwards, we found that the predictions based on the comparison between the fitness scores of actual groups formed and those of the corresponding population constructed are reasonably accurate, and that the implications based on the ranking of individual firm utility within each group are generally supported.