Using asset prices to explain the fluctuations of nominal exchange rate is popular for decades. A majority of papers focused on Monetary Model but failed to make a consistent conclusion. In this article, we suggest that the failure of monetary model might be coming from the basic assumption of taking different countries¡¦ assets as ¡§perfect substitutes¡¨. Under such circumstances, we introduce another model named as ¡§Portfolio Balance Model¡¨ where assets of different countries are no longer be taken as ¡§perfect substitutes¡¨ , implying that UIP( Uncoverd Interest Rate Parity)exist no more either. We do not overthrow the entire theory of Monetary Model. Instead, we expect the combination of these two models will turn something out that can be much more general, consistent, and robust. We take Canada as our domestic currency and adopt Johansen(1988) and Stock & Walson(1988) by using co-integration to test on three exchange rates relation (USD/CAD,GBP/CAD,JPY/CAD) from 1973 Q1 to 2004 Q4. It turns out that most of the coefficient are correct and passing statistical significance, such result suggest that the portfolio balance effect should not be ignored in the model.

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If there is currency substitution, the central bank will lose independence in monetary policy even if the flexible exchange rate system is adopted. In this paper, we investigate the existence of currency substitution between Taiwan and the United States in an open economy during the period of the managed floating exchange rate system, and examine the role of the factor influencing monetary policy and domestic money demand function derived from a small-country portfolio balance approach. To take account of currency substitution, we use quarterly data over 1981-2005 period on the demand for money and include data on the real exchange rate in addition to real income, domestic nominal interest rate and foreign nominal interest rate. The methodology is based on an application of the Johansen and Juselius¡]1990¡^cointegration technique. Also use error correction model to discuss short-run dynamic adjustment processes of these variables. Application of the Augmented Dickey-Fuller test and Phillips-Perron test indeed reveal that all variables are integrated of order one. The result from the Johansen¡¦s maximum likelihood mehtod reveal that there is only one cointegrating vector among the variables. This implies that there is long-run equilibrium relationship among the variables. There is clear evidence that demand for money is affected not only by changes in domestic variables such as real income, domestic nominal interest rate but also by fluctuations in foreign nominal interest rate and real exchange rate. And the coefficiect of the real exchange rate is negative and statistically significant. That means currency substitution is significant factor in the domestic money demand equation and currency substitution indeed exists in Taiwan. This paper successfully provides a consistent result, currency substitution indeed exists in Taiwan. Therefore, to have an effective monetary policy, the monetary authorities should take into account the international factors.

This study aims to investigate currency substitution and financial dollarization in Turkey. The extend of dollarization in Turkey appears to be very high according to both the conventional currency substitution and the recently developed financial dollarization measures. This has serious policy implications as a source of financial fragility through currency/maturity mismatches and balance sheet effects. The empirical part of this study contained an investigation of the long run relationships between the variables in a system containing currency substitution ratio, expected exchange rate change and rates of return on domestic and foreign currency denominated assets. The results of the Johansen cointegration analysis based on quarterly data for the 1987-2004 period appeared not to be strongly supporting the General Portfolio Balance Model (GPBM). The theoretical part of this study suggests that the GPBM can be reduced to the Sequential Portfolio Balance Model (SPBM) under the uncovered interest parity (UIP) hypothesis. Consequently, the GPBM may be misleading under UIP. The Johansen cointegration results suggested the validity of the UIP for the Turkish data. The estimation of the SPBM suggested that there is a long-run relationship between currency substitution and expected exchange rate change in Turkey. The elasticity of currency substitution appeared to be high but consistent with those estimated for other high inflation developing countries. The results further supported the presence of a ratchet/hysteresis effect proxied by a trend variable. All these results are consistent with the argument that currency substitution and financial dollarization are important especially in high inflation countries.

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[pt] Esta tese é composta de três ensaios. Os dois primeiros investigam a relação entre a potência da política monetária e a prevalência do crédito direcionado (concedido à taxas de juros insensíveis ao ciclo monetário) na economia. O primeiro mostra que a evidência microeconométrica disponível não é necessariamente informativa sobre o fenômeno macroeconômico de interessee ilustra esse resultado com um modelo Novo-Keynesiano simples com financiamento de capital de giro. Dando sequência, o segundo ensaio estende a análise usando um modelo DSGE de médio porte no qual crédito direcionado é utilizado pelas firmas para financiar a aquisição de capital. O modelo é estimado para o Brasil usando técnicas Bayesianas. Sob a distribuição priori mostra-se que a presença de crédito direcionado não reduz necessariamente a potência da política monetária sobre a inflação. Sob a distribuição posteriori mostra-se que a redução de potência é provável, mas pequena. Finalmente, o terceiro ensaio estuda em que medida o efeito de fluxos de capitais sobre o ciclo de negócios depende do tipo do influxo (e.g., se para títulos ou para ações, se um fluxo de ativo ou de passivo), construindo para tanto um modelo Novo-Keynesiano de economia aberta com fricções financeiras. Identifica-se mecanismos diretos através dos quais o influxo pode ter efeito diferenciado dependendo do seu tipo. Conclui-se, usando uma versão calibrada do modelo, que as diferenças são provavelmente pouco significativas. / [en] This thesis is comprised of three essays. The first two investigate the relationship between monetary policy power and the prevalence of earmarked credit (featuring interest rates that are insensitive to the monetary cycle) in the economy. The first shows that the available microeconometric evidence is not necessarily informative about the macroeconomic phenomenon of interest, and illustrates this result with a simples New-Keynesian model with working capital credit. Giving sequence, the second essay extends the analysis with a medium-sized DSGE model where earmarked credit is used to finance the acquisition of physical capital by firms. The model is estimated to Brazil using Bayesian techniques. Under the prior distribution it is shown that the presence of earmarked credit does not necessarily reduces monetary policy power over inflation. Under the posterior it is shown that a reduction of power is likely, but small. Finally, the third essay studies to what extent the effects of capital flows on a small open economy s business cycle depend on the type of the inflow (e.g., whether a bond or a stock inflow, a liability or an asset flow), and for such it build an open economy New-Keynesian model with financial frictions. Direct mechanisms through which inflows may have differentiated effects depending or their type are identified. Using a calibrated version of the model it concludes that the differences are probably of little significance.

自從1973年主要工業國家紛紛放棄可調整固定匯率制度，改採浮動匯率以來，通貨替代的命題一直是許多國家注意的焦點。其主要的影響可分為下列二方面來說明： 　　1.通貨替代的存在，將引起匯率的大幅波動。 　　2.通貨替代的存在，將一國的貨幣干擾傳遞至其它國家，造成國際間各國貨幣政策有相依性，降低當局控制本國貨幣的自主性。 　　本文嘗試以資產組合相對報酬率之觀念，建立短期動態通貨替代實證模型，利用民國68年2月至民國83年12月之月資料，來探討台灣是否存在"通貨替代"的現象。得到下列的結論： 　　1.在整個樣本期間的估計結果，我們獲得解釋變數的係數符號與理論要求一致，且係數估計值顯著，而殘差項亦大致符合OLS基本假設中的規定。 　　2.從半彈性的估計值中，我們發現：M1A與美元的持有比例對實際匯率變動率之半彈性估計值，顯然比M1B與美元的持有比例對實際匯率變動率之半彈性估計值為大，這表示當匯率變動率發生變化時，人們較易改變其M1A與美元間的通貨組合。 　　由以上的結果，本文得到台灣的確存在"通貨替代"的現象。

This work scrutinises, evaluates and systematises the modern exchange rate theories. Its aim is to familiarise the reader with the concepts of expectation, Purchasing Power Parity and Interest Rate Parity, which together form the basis of the following analysis of monetary and portfolio theories of the exchange rate determination. Then, it provides a comparison of the various approaches to these theoretical frameworks with regard to their respective authors. The paper is concluded by an evaluative description of the conditions under which such theories could be applied.