This dissertation consists of three essays. Chapter II examines the possible asymmetric response of gasoline prices to crude oil price changes using an error correction model with GARCH errors. Recent papers have looked at this issue. Some of these papers estimate a form of error correction model, but none of them accounts for autoregressive heteroskedasticity in estimation and testing for asymmetry and none of them takes the response of crude oil price into consideration. We find that time-varying volatility of gasoline price disturbances is an important feature of the data, and when we allow for asymmetric GARCH errors and investigate the system wide impulse response function, we find evidence of asymmetric adjustment to crude oil price changes in weekly retail gasoline prices Chapter III discusses the relationship between fiscal deficit and exchange rate. Economic theory predicts that fiscal deficits can significantly affect real exchange rate movements, but existing empirical evidence reports only a weak impact of fiscal deficits on exchange rates. Based on US dollar-based real exchange rates in G5 countries and a flexible varying coefficient model, we show that the previously documented weak relationship between fiscal deficits and exchange rates may be the result of additive specifications, and that the relationship is stronger if we allow fiscal deficits to impact real exchange rates non-additively as well as nonlinearly. We find that the speed of exchange rate adjustment toward equilibrium depends on the state of the fiscal deficit; a fiscal contraction in the US can lead to less persistence in the deviation of exchange rates from fundamentals, and faster mean reversion to the equilibrium. Chapter IV proposes a kernel method to deal with the nonparametric regression model with only discrete covariates as regressors. This new approach is based on recently developed least squares cross-validation kernel smoothing method. It can not only automatically smooth the irrelevant variables out of the nonparametric regression model, but also avoid the problem of loss of efficiency related to the traditional nonparametric frequency-based method and the problem of misspecification based on parametric model.

Why did China choose certain policy over others that would achieve similar impact? Because China has a significant presence in the modern international community, it is difficult yet critical to understand the policy implications of the Chinese government under its unique political and socioeconomic context. This thesis shows the impact of a specific “price floor” policy China chose to employ in its oil and gasoline market, and identifies the factors concerning the Chinese regime that it took into consideration in the decision making process, through analysing data and official statements released by the government. After different parties affected by this policy are recognized, this thesis investigate how those impacts relate back to the Chinese government’s long-term agenda of energy security and environmental protection.

This thesis develops a new methodological approach to test for threshold cointegration. It determines the threshold locations, the number of thresholds, and tests the null hypothesis of a unit root against the alternative of a stationary threshold process using p-values based on a residual-based block bootstrap for the nonlinear threshold autoregressive specification (TAR). Chapter 2 describes the methodological approach which combines Gonzalo and Pitarakis (2002) and Seo (2008). Chapter 3 employs Monte Carlo analysis to investigate the properties of the new approach. The results indicate that the methodology performs well and is suited for application to real world time series. Chapter 4 applies the new approach in combination with a threshold error correction model (ECM) to determine the spatial relationships among three crude oil prices: WTI, Brent, and Oman, from 2008 through 2011. The results indicate that the crude oil benchmarks are tied together by a long run relationship; however, the recent reversal in price premium between the two main crude oil benchmarks, WTI and Brent, is an anomaly that has resulted in a time period in which the series do not have a tendency to move back toward their long run relationship. Chapter 5 applies the new approach, in combination with threshold ECMs, with regime switches being triggered by the upstream markup margin to determine the vertical relationships between the crude oil, rack, and retail gasoline prices for six cities across North America. The results using both daily and weekly data between 2008 and 2011 suggest that upstream and downstream prices are cointegrated. There is evidence of band-TAR in which the crude, rack, and retail prices are free to diverge until the markup margin is squeezed or stretched beyond a lower or upper threshold. This suggests that abnormally high margins cannot be sustained indefinitely. The threshold ECMs indicate that there is no systematic relationship between the speed of adjustment and the markup margin; however, the residuals exhibit a leverage effect in which volatility and price changes are negatively correlated. Chapter 6 concludes with a summary of Chapters 2 through 5 and makes suggestions for future research. / Thesis (Ph.D, Management) -- Queen's University, 2012-06-17 22:53:24.922