Thesis (Ph. D.)--Ohio State University, 2006. / Title from first page of PDF file. Includes bibliographical references (p. 98-102).

This paper examines the main determinants of inflation in Madagascar during the period 1984-2011, using cointegration approach. The empirical results highlight the existence of a stable money demand relationship that dictates the movement of prices in the long run, as well as a long run equilibrium involving domestic prices, exchange rate and foreign prices. Also, we found two long term relationships involving money, aggregate price, oil price, as well rice price. In the short run, inflation adjusts to deviation from the long run equilibrium in the monetary market, money growth have a positive impact on inflation while an appreciation of the exchange rates causes inflation to decelerate. We also find that inflation has a considerable inertia, movements in the prices of oil and rice affect the inflation rate in the short term, and the influence of external shocks are quite important. Variance decomposition and impulse response allow to examine the responses of the variables to various shocks.

O objetivo desse estudo é avaliar a validade da Teoria da Paridade do Poder de Compra (PPC) no Brasil em sua recente experiência de regime de câmbio flutuante, 1999M01-2009M12. São empreendidas decomposições da taxa de câmbio real de forma a evidenciar o papel da taxa de câmbio nominal, dos preços de bens comercializáveis e não comercializáveis, e preços das exportações e importações. A validade da PPC é diretamente testada através de testes de cointegração. Os resultados apontaram que ambos os setores, dos comercializáveis e não comercializáveis, são relevantes nos desvios da taxa de câmbio real, mas que a fonte de desvios não estacionários da PPC está relacionada ao setor dos não comercializáveis, tendo-se, portanto, evidência favorável à validade da Teoria da PPC para o setor dos comercializáveis no Brasil durante o período. Na relação de cointegração do setor dos comercializáveis, a taxa de câmbio nominal se apresentou fracamente exógena e os índices de preços tiveram velocidades de ajustamento significativas, sendo maior para os preços externos. Esses resultados são consistentes com um cenário em que a determinação da taxa de câmbio nominal é dominada por fatores fora do escopo da PPC e os preços dos comercializáveis se ajustam à relação de equilíbrio. / The aim of this study is to evaluate the validity of the Purchasing Power Parity Theory (PPP) in Brazil during its recent experience of floating exchange rate regime, 1999M01- 2009M12. Real exchange rate decompositions are undertaken in order to highlight the role of nominal exchange rate, prices of tradable goods and relative prices of nontradable goods, and prices of exports and imports. The validity of PPP is directly tested through cointegration tests. The results have shown that both sectors are relevant for the deviations of the real exchange rate, but that the source of non-stationary deviations from PPP is related to the nontradable sector, and, therefore, there was favorable evidence for the validity of PPP theory for tradable goods sector in Brazil between 1999 and 2009. For the cointegration relationship of the tradable sector, the nominal exchange rate appeared to be weakly exogenous and the index prices presented significant speeds of adjustment, which was higher for foreign prices. These results are consistent with a scenario in which the nominal exchange rate determination is dominated by factors outside the scope of the PPP and the prices of tradable goods adjusts to the equilibrium relationship.

Abstract The purchasing power parity puzzle, exchange rate disconnection to macroeconomic fundamentals and pricing to market are central issues of international macroeconomics. Recent research has suggested that these issues can be presented by nonlinear behaviour. In this dissertation, we examine and explain the nonlinearities in the form of regime switching behaviour in real exchange rate series, exchange rate and macroeconomic fundamentals relation and exchange rate pass-through into consumer and import prices. Overall, we find evidence that nonlinearities are important in analysing empirical exchange rate models. The dissertation consists of four self-contained empirical studies. In chapter 2 we examine whether the Markov switching models and exponential smooth transition autoregressive models can give any additional insights into real exchange rate behaviour for several OECD countries. The results show that there are long swings in the real exchange rate series, which can be characterize as a depreciation and an appreciation regime. These regimes are very persistent, although the processes are eventually mean reverting. We estimate a multivariate smooth transition autoregressive model for the euro/dollar exchange rate in chapter 3. The significant point of our analysis is the possibility that a nonlinear specification for the exchange rate series might reveal aspects of the exchange rate dynamics that cannot be picked up by linear models. We find that the euro/dollar exchange rate may display random walk or near random walk behaviour within a certain range but the ability of the exchange rate to wander without any bound is limited by long-term government bond interest rate differentials. In chapter 4 we examine nonlinear relationships between macroeconomic fundamentals and exchange rate for G-7 countries. We estimate a smooth transition error correction model that allows for parameter variation in the error correction form and interest rate differentials. The nonlinearity is determined by the inflation rate differentials between countries. We find significant error correction terms in monetary models. Our findings suggest the importance of nonlinear dynamics for examining deviations from the long-run equilibrium. We examine whether the degree of exchange rate pass-through is dependent on importing country inflation rate in chapter 5. Our model shows that import prices respond differently to exchange rate changes when we are in a high inflation regime compared to a low inflation regime. We also present empirical evidence by estimating pass-through elasticises for several OECD countries. We find that consumer prices are not very sensitive to exchange rate changes. For aggregate import prices, we find partial or full exchange rate pass-throughs. The tested nonlinear regime specific models proved appropriate for testing exchange rate dynamics for several currency pairs. Furthermore, we were able to present that macroeconomic fundamentals are important predictors of exchange rates.

Magister Commercii - MCom / This paper tested the purchasing power parity hypothesis for Botswana and South Africa using cointegration analysis. The data used are the spot exchange rate between the two countries (rand and pula) and their consumer price indices. / South Africa

The goal of this diploma thesis is to assess purchasing power parity (PPP) under the conditions of transition process. The thesis provides a survey of the purchasing power parity theory and concentrates on the relative version. It outlines main causes of possible deviations and modifications of the model. In the empirical part four transition economies are tested for the PPP theory: the Czech Republic, Hungary, Poland and Slovakia. The diploma thesis concludes with analysis of the role of the exchange rate under conditions of a small open economy. The overall analysis is implemented within the context of real and nominal convergence towards European Union and future accession to the European Monetary Union.

This dissertation investigates the commodity currency argument of primary and secondary effects of the terms of trade on exchange rates and real income, respectively. The Johansen procedure of cointegration testing is applied to dynamic models for a set of four developed countries (New Zealand, Australia, Norway and Iceland) and five less developed countries (Colombia, India, Malaysia, Thailand and Venezuela) each against it's major trading partner and the United States. The stationarity of the real exchange rates as well as cointegration between the nominal exchange rates and the ratio of national price-levels (price-ratio) are analyzed for two sets of data (annual and a relatively shorter quarterly) and for two different price measures (GDP deflator and CPI). The hypothesis of the terms of trade effects is investigated by including the terms of trade variable in the models of real exchange rates and models of nominal exchange rates and price-ratios. For developed countries, using annual data, real exchange rates are found to be stationary without the terms of trade in eleven cases, and on including the terms of trade evidence of cointegration is found in three further cases. For the quarterly data of the developed countries, there is some evidence of the real exchange rate being stationary without the terms of trade and some evidence of cointegration between the real exchange rates and the terms of trade for both price indices. Analysis of the long-run equilibrium relationship between the nominal exchange rate and price-ratio without the terms of trade showed some evidence of a cointegrating relationship. On including the terms of trade strong evidence of cointegration is obtained for New Zealand and Austra1ia but not for Norway. Moreover, while evidence for the long-run equilibrium relationships of purchasing power parity are mixed there is strong evidence of improvement in the terms of trade leading to appreciating exchange rates. Also, the terms of trade are found to be exogenous between small countries (New Zealand-Australia). Only quarterly data and CPI are used for the less dev.~loped countries. Results on stationarity of the real exchange rate, the equilibrium relationship between the exchange rates and price-ratio, and the role of terms of trade are again mixed. Finally, the short-run effects of the terms of trade on real income are investigated for New Zealand, Australia and Norway using quarterly data. Dynamic models of first, the real income and terms of trade and real income, terms of trade, and, second, the real exchange rates are analyzed. Validity of the commodity currency argument is evidenced only in some of the three-variable models. / Ph. D.

This study uses a random coefficient estimation procedure to test the hypothesis that much of the volatility in the U.S./Canada real exchange rate over the time period 1971 through 1999 is due to the relative price of non-traded goods to traded goods. The model specification used in this study provides estimates of the sensitivity of movements in the U.S./Canada real exchange rate to movements in both the relative price of traded goods and the relative price of non-traded goods to traded goods in each of the two countries. I test for purchasing power parity in each of the two components of the model and address the question of volatility through the examination of the time profile of the respective coefficient estimates. The empirical results support the conclusion that the average value of the coefficient on the relative price of non-traded goods to traded goods component is smaller than that on the relative price of traded goods component. However, purchasing power parity in both components can not be rejected when the period of study is limited to 1971 through 1994. Furthermore, examination of the time profile of the random coefficients on the relative price of non-traded goods to traded goods component suggests that it is much more volatile and, therefore, quite significant in capturing the volatility in U.S./Canada real exchange rate movements. With regard to purchasing power parity in both the traded goods component and the non-traded goods to traded goods component, these results are consistent with the implications of the theory of purchasing power parity. However, they are not entirely consistent with the evidence presented in recent literature. Specifically, evidence presented in recent studies can not support perfect purchasing power parity in either traded goods or non-traded goods and leads to the conclusion that non-traded goods are much less significant, if at all, in the determination of the U.S./Canada real exchange rate. This inconsistency with recent literature is most likely a result of the fact that the random coefficient modeling technique used in this study allows the coefficients to vary over time and, thereby, enables the volatility of both components to be captured in the model. Therefore, given the apparent significance of the relative price of non-traded goods to traded goods, the volatility of this component can logically be expected to significantly contribute to the volatility in the U.S./Canada real exchange rate. / Master of Arts

The first Chapter investigates Purchasing Power Parity (PPP) price convergence across U.S. states using a 1963-2018 panel dataset. We focus on precise measurements of the convergence rate towards PPP. The methodological sequence includes a benchmark AR (1) model, corrected for cross-sectional dependence and assessments for cross-sectional heterogeneity, yielding a more rapid rate of convergence via unbiased estimations of price level convergence. Specifically, in our major price-level indicator, we find a mean reversion rate of 3.29 years after correcting for cross-sectional dependence, as against 12.12 years before the correction. In addition, we examined the possibility of some states in certain region exhibiting faster price convergence relative to the others. We find a slower convergence rate in the Northern states relative to Southern states. Chapter two investigates the transmission of monetary policy into financial markets during the COVID-19 pandemic, examining the impact on interest rates, exchange rates, stock market indices, and long-term government bond yields across 17 advanced economies. Leveraging panel data spanning from 2002 to 2022, we employ interacted panel vector autoregression (PVAR) methodology to analyze differences in policy transmission between the pandemic period and normal times. Our findings indicate that the emergence of pandemic has weakened the transmission of monetary policy to financial markets to a large extent. Thus we see a notable difference in the effectiveness of conventional monetary policy during the pandemic, with policy rate changes exhibiting diminished impact on financial market variables compared to normal times. We attribute this divergence to heightened uncertainty, cautious investor behavior, and the unprecedented economic complexities brought about by the pandemic. Chapter three examines the persistence of productivity shocks across different U.S. states, employing the autoregressive coefficient to measure the extent to which past productivity levels influence current levels. The methodological sequence includes a benchmark AR (1) model, correction for cross-sectional dependence via the Dynamic Common Correlated Effects Model (DCCE), and assessments for cross-sectional heterogeneity. Our analysis reveals significant variation among states, with Pennsylvania displaying very high persistence and Virginia much lower persistence when using Minnesota as the numeraire. We also examine the half-life of productivity shocks, defined as the time required for the impact of a shock to reduce by half. Pennsylvania's half-life of 22.34 years suggests highly persistent shocks, whereas Virginia's 0.76 years indicates rapid dissipation. Minnesota's half-life is 1.93 years, providing a reference point for the comparison.

Professors Bela Balassa and Paul Samuelson (1964) have made a significant contribution to the theories of exchange rate by bringing a new thinking to the most popular exchange rate model, Purchasing Power Parity (PPP). They have elucidated the contribution of productivity in the determination of PPP. Accordingly, the emphasis of this thesis is Balassa and Samuelson’s Productivity Bias Hypothesis (PBH) in Purchasing Power Parity (PPP) and the application thereof to South Africa and Switzerland for the period 1994Q1 -2003Q4. The productivity bias hypothesis that explains real exchange rate movements in terms of sectoral productivities rests on two components: firstly, it implies that the relative price of non-traded goods in each country should reflect the relative productivity of labour in the traded and non-traded goods sectors. Secondly, it assumes that purchasing power parity holds for traded goods. The deviation of PPP from the equilibrium exchange rate or the real exchange rate is directly related to the ratio of productivity in a counter country over that of the base country. With inter-country productivity differences believed to be smaller in the service sector than in the sectors producing goods and with the prices of traded goods equalised through arbitrage, the relative prices of non-traded goods (services) would be directly correlated with productivity levels in individual countries. The thesis employs stationarity and cointegration tests in order to determine the presence of long-term, equilibrium, relationship between PPP and productivity variables of the above-mentioned two countries. The overall finding of this thesis is supportive of the productivity bias hypothesis in purchasing power parity concerning the two countries, South Africa and Switzerland. Accordingly, it has been found out that the deviation from equilibrium exchange rate can be explained by differences in productivity. Though currently being challenged by the service sector, South Africa’s manufacturing sector is assuming an important place in the economy. Given the need for improved competitiveness in the manufacturing sector, it is imperative that policy analysis and formulation render increased emphasis on efficiency and costeffectiveness. Such an integrated approach may aid not only in raising productivity but also in managing the intertwined socio-economic challenges of unemployment, poverty and inequality. / Thesis (M.A.)-University of KwaZulu-Natal, Pietermaritzburg, 2005.