Thesis (Ph. D.)--University of Missouri-Columbia, 2001. / Typescript. Vita. Includes bibliographical references (leaves 110-115). Also available on the Internet.

The three chapters of this thesis address two questions. First, how are real and nominal exchange rates between different national currencies determined? Second, how does this determination influ- ence the international transmission of macroeconomic fluctuations and, especially, monetary policy disturbances? Chapter 1 comprises an empirical evaluation of long-run purchasing power parity as a theory of equilibrium nominal exchange rate determination for the post-Bretton Woods data. Structural time series methods are used to identify bivariate moving average representations of nominal exchange rates and relative goods prices and to test whether these empirical representations are consistent with the implications of purchasing power parity. Long-run purchasing power parity can be un ambiguously rejected for the G- 7 countries. There are permanent deviations from parity which account for almost all of the variance of real exchange rates, and which are driven by permanent disturbances to nominal rates which are never reflected in relative goods prices. Chapter 2 presents an empirical evaluation of the hypothesis that the global Depression of the 1930’s was attributable to international transmission of (idiosyncratic) U.S. monetary policy actions through the International Gold Exchange Standard - fixed exchange rate - regime. Specifically, the analysis evaluates whether the interwar output collapse in Canada was caused by transmitted U.S. monetary policy disturbances. A multivariate structural time series representation of the Cana dian macroeconomy is estimated which is consistent with the dynamic and long-run equilibrium properties of a Mundell- Fleming small open economy model and in which U.S. data represent the ‘rest of the world’. The empirical results show that U.S. monetary disturbances play a negligible role for both Canadian and U.S. output movements in the 1930’s. Permanent common real shocks to outputs can account for the onset, depth and duration of the Depression in both economies. There is little evidence to support a Gold-Standard transmitted global output collapse through the transmission mechanisms usually associated with purchasing power parity theories of real exchange rate determination. Chapter 3 develops an alternative theory of real and nominal exchange rate determination and of the international transmision mechanism which can account for many stylized facts regarding the empirical behaviour of real and nominal exchange rates that long-run purchasing power parity fails to explain. In a two-country, two-currency overlapping generations model, the role of optimal portfolio choices between internationally traded assets is emphasized - rather than goods market trade - as the source of currency demands. These demands, and supplied of assets generated by domestic monetary policies, determine both real and nominal exchange rates. Here, monetary policy changes can induce permanent international and intra-national reallocations through real exchange rate and real interest rate adjustments. This transmission mechanism differs markedly from that implied by purchasing power parity.

This thesis presents six essays relating to various aspects of the workings of the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS), an adjustable-peg exchange rate regime that has been in operation in Europe since 1979. The essays follow its development, from its inception in 1979, to its near collapse in 1992, and its current prospects in the context of economic and monetary union. The essays focus on several aspects of the EMS, notably volatility of exchange rates, offshore interest rates and forward exchange rates, the target zone model, time-series analysis of exchange rate changes, and how the EMS fits in with current plans for economic and monetary union in Europe.

No description available.

Following the 1997 Asian Crisis, a number of economies have been burdened with so-called Twin Crises, facing both vulnerable exchange rates and a distressed financial sector. The three papers in this thesis examine the resolution of a twin crisis in one such country - Indonesia. In debt overhang and exchange rate collapse, I adopt the simplest representation of the economy and the Asian crisis. The model is a modified Hecksher-Ohlin framework with labour as the sole domestic factor. The crisis is triggered by a terms of trade shock. The analysis implies that workers have already suffered a wealth loss in the form of a wage cut. If they are inclined to pay all the overhang, they will take another cut - a large one - due to the so-called overhang multiplier. In Indonesian cronies' tardy crisis resolution skills, both the underlying model and the description of the crisis are made more realistic. The model has another domestic factor added to allow for the existence of domestic capitalists. The crisis is triggered by two additional factors; a loss of confidence by foreign investors and an end to a domestic subsidy on foreign capital. Until agreement is reached on the overhang, the economy suffers so-called corporate decay. I introduce the cronies, and show that it may be optimal for them to stall agreement, even if there is perfect information. Contrary to conventional wisdom, bankruptcy reforms do not necessarily hasten agreement, though they do improve the payoffs to the international creditors. In debt forgiveness, I examine the pessimistic scenario that Indonesia becomes like a Highly Indebted Poor Country (HIPC), so that all the issues related to debt forgiveness become relevant. I improve a contract arising from a workhorse model of debt forgiveness, showing a better way to provide reform incentives for countries heavily in debt.

The purpose of this thesis is to provide new evidence on the pricing of foreign exchange risk in the stock market by testing international asset pricing models (IAPMs) under varying market structures and different exchange rate measures. It is composed of three essays. In the first essay, I test unconditional asset pricing models with exchange risk using country, portfolio and firm level data from nine emerging markets (EMs). It is shown that unlike the case for developed markets where unconditional tests often fail to detect a significant exchange risk premium in stock returns, exchange risk is unconditionally priced in EMs. However, when local market risk is introduced in the model to take into account potential segmentation effects, exchange risk premia are totally subsumed by local risk premia for most countries especially at the firm level. The second essay examines the significance of exchange risk in conditional IAPMs using multivariate GARCH-in-Mean specification and time varying prices of risk. The model tested assumes partial integration and uses real exchange rates to account for both inflation risk and nominal exchange risk. The main empirical results support the hypothesis of significant exchange risk premia in EMs equity returns even after accounting for local market risk. The exchange risk premia are also economically significant as they represent on average 18 percent of total premium, and may reach up to 45 percent of total premium for some countries over sub-periods. In the third essay, I test for the pricing of exchange risk in stock returns using globally diversified sector portfolios. The purpose of this test is to examine the effect of cross-currency diversification on the global price of foreign exchange risk. Since there is no previous evidence on this issue, I use data on the G7 countries and EMs. The results suggest that the effects of exchange risk may be less significant in pricing global assets such as global s

Thesis (Ph. D.)--University of Hawaii at Manoa, 1995. / Includes bibliographical references (leaves 194-210). / Microfiche. / xv, 210 leaves, bound 29 cm

Thesis (Ph. D.)--University of Hawaii at Manoa, 1995. / Includes bibliographical references (leaves 179-187). / Microfiche. / xiii, 187 leaves, bound ill. 29 cm

Thesis (Ph. D.)--University of Hawaii at Manoa, 1996. / Includes bibliographical references (leaves 153-163). / Microfiche. / xviii, 163 leaves, bound ill. 29 cm

This thesis examines China's exchange rate and its relationship with China's foreign trade in the reform period from the late 1970s to the present. China's foreign exchange management system has undergone major changes in the past two decades. The exchange rate regime has evolved from a fixed (but adjustable) rate, to a dual exchange rate system in the 1980s and early 1990s, and to a managed floating rate in the mid 1990s. The official exchange rate was devalued substantially from 1980 to 1994. Since1995, the official exchange rate has been de facto pegged to the US dollar. Although the nominal exchange rate is subject to central bank intervention in the foreign exchange market, the government claims that China’s currency, the Renminbi, achieved current account convertibility at the end of 1996. / The parallel exchange rates were an internal settlement rate adopted in the 1981-1984 period and a swap market rate in the 1987-199:3 period. The internal settlement rate was based on the cost of foreign exchange earnings and it was constant over the period. The swap market rate was semi-market-determined in foreign exchange swap markets in which foreign exchange retention quotas were traded. Since the official exchange rate and the interest rate were rigorously controlled by China's authorities, it is not surprising that purchasing power parity and interest rate parity do not hold for this period. However, it is found that the swap market premium over the official exchange rate is closely related to the inflation differential between China and the United States. / Trade liberalisation accompanied by currency devaluation has been one of key elements of the successful experience of the Chinese economy. This thesis calculates a new and improved series for the real effective exchange rate in order to estimate the effects of exchange rate changes on foreign trade. By estimating real export and import equations, it is found that changes in the real exchange rate did affect the volumes of foreign trade, and that a real devaluation would promote exports and restrain imports, thus improving the trade balance. / China has a strongly dualistic trade regime, and because of this characteristic the total trade account is disaggregated into processing and other trade. Processing trade is the trade of export processing when imported intermediate inputs are processed in China and then the finished goods are exported. A model of fragmentation with multistage production is set up to analyse the relationship between exchange rate changes and the volume of processing trade. The model shows that a devaluation of the domestic currency would likely increase China's processed exports and domestic employment. The empirical evidence is consistent with the findings from the theoretical model. / The thesis then goes on to examine China's exchange rate mechanism. Official documents and statements clearly indicate that export promotional was a major objective of the authorities in adjusting the exchange rate and that price stability was also a key factor in determining the level of the official exchange rate, particularly after the late 1980s. The results from estimating policy reaction functions suggest that the authorities did adjust the exchange rate in response to changes in trade performance and prices (or the rate of inflation). A worsening trade account would prompt the authorities to devalue the currency while rising inflation would slow the pace of devaluation. / The findings from this thesis imply that the current policy of a nominal exchange rate pegging to the US dollar and related restrictions on foreign exchange and imports will not assist further liberalisation of foreign trade, which is necessary to sustain China’s economic growth. With the accession to the World Trade Organisation in the near future, an exchange rate policy consistent with the reduction of trade restrictions is an urgent need for the Chinese economy.