Purchasing Power Parity (PPP) has been regarded as the most important theory to explain the exchange rate movement based on relative price levels of two countries. After 1973, more and more countries were taking the floating exchange rate system, and the real exchange is testing out to be a non-stationary time seriess. This would be some real factors to have an effect on the real exchange rate. In the article, We study how these possible factors change the real exchange rate and make use of Wu et.al (2008) and Lee (2010)¡¦s local projection to estimate the impulse responses under the non-stationary time series which has cointegration vectors, and then we compare the difference between the impulse response in conventional VAR and the impulse response in Local Projection. The emprical model we use is the smae one as in Zhou (1995) and Wang and Dunne (2003), and the rule of the data is the same as in Wang and Dunne (2003). Finally, we get the consistent conclusion with Wu et.al (2008), Zhou (1995) and Wang and Dunne (2003).

This paper deploy the logit approach model and collect annual data from 1974 to 2004 in 22 OECD countries. It can examine that the option of exchange rate regime may cause the replacements of the governor of central banks during his tenure of office. According to prior empirical studies shows that the rightist parties favor low inflation, they may choose fixed exchange rate regime for holding monetary stability; otherwise, the leftist parties prefer low unemployment and high production, they may adopt the flexible exchange rate regime to maintain independent monetary policy and to achieve their macroeconomic objectives. Due to diverse political preferences, Does the choice of exchange rate regime disobeyed the political ideology of ruling party will cause that the central bank governors lose their job? Our results manifest that these chairmen of central banks can independently insist and defend their exchange rate regimes in OECD countries.

The dissertation consists of three essays. Chapter II examines the asymmetric effects of monetary policy on stock prices by using an unobserved components model with Markov-switching. My results show that monetary policy has negative effects on stock prices, which is consistent with the most recent literature. When the transitory component is in the low volatility state, a contractionary monetary policy significantly reduces stock prices. When the transitory component is in the high volatility state, the negative effect of monetary policy becomes larger, but the difference of the monetary policy effects between two states is not significant. Besides, a contractionary monetary policy will lower the probability of stock prices staying in the low volatility state. Monetary policy also reduces the total volatility of stock prices and the volatility of the transitory component of stock prices. Chapter III employs the smooth transition autoregressive (STAR) models to investigate the nonlinear effect of monetary policy on stock returns. The change in the Federal funds rate is used as an endogenous measure of monetary policy and the growth rate of industrial production is also considered in the model. My empirical results show that excess stock returns, the change in the Federal funds rate, and the growth rate of industrial production all can be expressed in the nonlinear STAR models. The estimated coefficients and the impulse response functions show that the effect of monetary policy on excess returns of stock prices is significantly negative and nonlinear. The change in the Federal funds rate has a larger negative effect on excess returns in the extreme low excess returns regime and the effect becomes smaller when the excess returns are greater than the threshold value. In chapter IV, I use a panel data approach to investigate the impact of exchange rate volatility on bilateral exports of the U.S. to the thirteen major trading partners. I further test the possibility of nonlinear effects of exchange rate volatility on exports by using threshold regression methods for non-dynamic panels with individual-specific fixed effects proposed by Hansen (1999). The results indicate that the effect of exchange rate volatility on bilateral exports is nonlinear. When the relative real GDP per capita of the exporting partner is lower than the threshold value, the response of bilateral U.S. exports to exchange rate volatility is positive. But, exchange rate volatility decreases bilateral exports of the U.S. to the exporting partners when their relative real GDP per capita surpass the threshold value.

There are gradually prosperous trades in foreign exchange markets, agents could hedge, speculate and arbitrage in markets. Market efficiency and whether future spot rates could be predicted by forward rates are worthy of investigate. Hakkio and Rush (1989) demonstrated that cointegration is a necessary condition for market efficiency hypothesis, so that the examination of cointegration to investigate the long-run relationship between the spot rates and forward rates is important. We consider a new method -- stochastic coinegration which contains heteroscedastic and stationary cointegration, to re-examine the relationships between spot and forward rates. The feature of stochastic cointegraion is that the cointegrating residuals contain the integrated of order one process and heteroscedastic integrated process. However the special residuals would stochastically trendless over time, so that the spot rates and forward rates has long run equilibrium relationship. Conclusively, the future spot rates empirically are stochastic (and conventional) coinegrated with forward rates in Taiwan, Japan, and Singapore.

There are gradually prosperous trades in foreign exchange markets, agents could hedge, speculate and arbitrage in markets. Market efficiency therefore is worthy of investigate in international finance. According to simple market efficiency hypothesis, the long-run relationship wound exist between spot exchange rate and forward exchange rate as foreign exchange markets are efficient. In the purpose of this study is to examine the long-run relationship between spot exchange rate and forward exchange rate by cointegration theory. We consider a new method¡Ðpanel cointegration that data sets contain not only time series also corss sections, to re-examine the relationship between spot and forward exchange rates. Conclusively, the results of cointegration relationships exist between spot and forward exchange rates in Taiwan, Singapore, Japanese, and Canada by applying panel cointegration model.

Because of economic globalization and prosperous growing international trade, the problem of international currency exchange derived from these situations becomes more serious. The exchange rate is the index for measuring the currency changing rate internationally, and the changing of exchange rate regime from fixed to floating will cause the volatility of exchange rate fluctuation. For Taiwan, a small open economy, and its exporting intensive policy, it is more difficult to avoid this impact. Therefore, it is meaningful to study the fluctuating of exchange rate. The study compares the sources of real exchange rate fluctuations between Taiwan and North America, Europe and Asia in the long run over the period 1981:1 to 2003:4. The theoretical model of Clarida and Gali (1994) is used to observe related output, real effective exchange rate, and domestic money supply which are variables of this study. In empirical, the unit root is used to confirm that the unit root is exist and through the cointegration test to make sure that there is no relation of cointergration. And then, make use of the way provided by Blanchard and Quah (1989), using the long run restriction to construct the structural VAR model, and impulse response function and variance decomposition is derived to analyze the problem. Through the empirical result, we can find that when Taiwan compare to North America and Europe, the source of long run real exchange rate fluctuation comes from demand shock, and this result is the same as Lastrapes (1992), Clarida and Gali (1994) and Chen and Wu (1997). For countries in Asia, which are developing countries mainly, the source of long run real exchange rate fluctuation comes from supply shock, and it explains the importance of effect of output .Besides, the long term monetary neutrality come into existence in each region, empirically.

This dissertation includes three issues, however, they are all adopted the view of firm¡¦s foreign exchange rate exposure to do the research. The main results of three topics as follows: In the first topic, this study uses the example of a Taiwanese firm investing in China and develops an exchange rate exposure model which depends on only four endogenous variables: the percentage of the firm¡¦s revenues denoted in the currency of trade country, the percentage of the firm¡¦s expenses denoted in the currency of trade country and third country, and its profit rate. The main issue in this research attempts to detect whether producing goods in the third country will affect a multinational firm on the exchange rate exposure and whether the currency manipulation will affect the decision of producing goods in the third country. This study finds that if a multinational firm can effectively adjust operational strategy and match foreign currency income with its cost, most of the exposure can be reduced. Besides this reducible effect of operational strategy, it is worth to note that diversified strategy just works under some conditions. For example, whether producing goods in the third country or not, the firm¡¦s exposure will not make changes as long as the currency is equal to its true value. However, under the case of currency manipulation, the firm producing goods in the third country can reduce exchange rate risk further. In the second topic, this paper studies the sensitivity of the cash flows generated by Chinese and Taiwanese firms to the movements in a trade-weighted exchange rate index, as well as to the currencies of their major trading partners. To overcome the deficiencies in previous researches using variations of the market-based model, this paper adopts the polynomial distributed lag (PDL) model to investigate the relative importance of transaction exposure versus economic exposure by decomposing exchange risk into short-term and long-term components. In contrast to the market-based model, we find that PDL model is better in detecting exposures with evidence confirmed both in China and Taiwan markets. Furthermore, our empirical results also verify past findings in Taiwan market that firms with higher foreign involvement have larger exchange rate exposure, firms with larger size have less exchange rate exposure, firms with larger exporting business are less exposed to the currency of primary exporting country, and firms with larger importing business are less exposed to the currency of primary importing country. However, these results are seldom agreed in China market. These findings imply that the exchange rate under the pegging regime and the floating system significantly affects firms in managing their exchange risk. In the third topic, it is generally argued that the choice of an appropriate exchange rate regime depends on which regime minimizes fluctuations in output, consumption, domestic price level, or some other macroeconomic variables. However, our study provides alternative analytic evidences on the firm-specific behavior. Using the real performance of operating income, this paper attempts to investigate the impact of fluctuating currencies on the values of U.S., Chinese, and Taiwanese companies. We find that the Chinese companies have more short-term exposures under the pegged regime, and the U.S. companies have more long-term exposures under the floating regime. Under the managed floating system, optimal lag length for Taiwanese companies is close to that of U.S. companies. However, the magnitude of exposure for Taiwanese companies is close to that of Chinese companies. These findings imply that the exchange rate under different exchange rate regimes significantly affects firms in managing their exchange risk.

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¡@The decision of company¡¦s capital structure should depend on each company¡¦s characteristic and environment for determining the proper debt level. Nowadays, in the global environment, corporation has been affected by the global variables. In addition to the involvement of international activity for corporation, the factor of global environment will also strike the corporation¡¦s characteristic and operating. ¡@This study uses the electronics industry as sample, and the sample period is from 2000 to 2006. This study will be divided into three parts. First, separate global activity into two dimensions: operating and finance, and to build respective measurement indicator of the internationalization. Second, discuss how these two dimensions influencing on the financial characteristic and capital structure for company. Finally, explore whether the international factors of exchange rate risk and political risk will affect the corporation capital structure. ¡@As a result, this study discovers three main conclusions. First, the international activity variables such as operating and financial characteristics actually exist in the electronics industry. Corporation can diversify the operating risk and reduce the cost of bankruptcy through the international activity of operating, however, that also restricts the investment opportunity and reduces the debt¡¦s agency cost at the same time. In addition, we find that the international level of operating will affect corporation¡¦s capital structure significantly. But if we control the variables of capital structure theory such as size, bankruptcy cost, debt¡¦s agency cost and the earning ability, it will become insignificant. However, the international level of finance always has significant and positive effect on corporation¡¦s capital structure no matter do we control the variables of capital structure theory or not. Third, as for the international environment factors, exchange rate risk is significant and positive factor for capital structure, conversely, political risk is significant and negative factor. Finally, this study exhibits that the decision of company¡¦s capital structure should consider the international environment for each company.

There should be more interpretations which are derived from data, presented by those professional analysts. The empirical rules and knowledge do help as making statistical inference in Econometrics. The approaches from classical statistical analysis make judges simply resulting from historical data. To be frank, the advantage of this analysis is the objectivity, but there is a fatal drawback. That is, it does not pay attention to some logically extra information. This paper is born for the applications of Bayesian, which has the essential characteristic of accepting subjective outlook, applying empirical rules to study unit root test on exchange rate market. Furthermore, the various distributions of data may have direct effect on the classical statistical inference we use, such as Dickey-Fuller and Phillips-Perron test. To take those defects into consideration, this paper tends not to take the assumption of disturbances in normal distribution as granted. For instance, it is quite common for us to confront the heavy-tailed distribution when studying some data of time series related to stocks and targets of investment. Hence, we will apply more generalized model to do research on Bayesian unit root test. Use the model of Schotman and Van Dijk (1991) and assuming disturbance shaped as independent student-t distribution to revise the unit root test, next, applying to exchange rate market. This is the motif of this paper.