Master Thesis: Evaluation of China's FOREX Policy: Equilibrium Exchange Rate Perspective. Author: - Qiriga Supervisor: Ing. Vilém Semerák M.A., PhD. Academic Year: 2018/2019 Abstract This thesis investigated China's foreign exchange policy from the equilibrium exchange rate perspective, using the Fundamental Equilibrium Exchange Rate model with multiregional dimension. The core question is whether Renminbi is misaligned (over- or undervalued) from 2001 to 2017. The result indicated that the bilateral nominal exchange rate of Renminbi against the US dollar was undervalued from 2002 to 2013, reaching a peak of 34.2% in 2007. In the rest of the years, it was overvalued slightly against the US dollar. As to the real effective exchange rate (REER) of Renminbi, it was overvalued in the first three years of the 2000s, then went through the period of undervaluation of 9 years, with a smaller degree compared with the bilateral exchange rate. It is shown that from 2013 the REER of Renminbi had been overvalued for several years until it was undervalued again in 2017 by 2%. Keywords FEER, Renminbi, exchange rate misalignment, multinational model, real effective exchange rate

The role-players in the South African (SA) agricultural sector have in recent years been increasingly exposed to international agricultural markets and this can have an important impact on them because (1) they are generally price-takers in world markets and (2) the rate of change in agriculture, and the uncertainty arising from it, appears to be accelerating in the global context (Boehlje, et. al., 2001). Therefore, it is critical that role players in the SA agricultural sector, including agribusinesses, farmers and government, are able to anticipate future directions of world markets (Meyer, 2002). A system of econometric models that could be used for scenario planning and improving business strategy and policy development would facilitate this. A relatively large-scale, multi-sector commodity level econometric simulation model, based on a method of econometric modelling developed and is successfully used by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri, has been developed to describe various agricultural subsectors in South Africa (Meyer, 2006). It is currently housed at the Bureau for Food and Agricultural Policy (BFAP) at the University of Pretoria. The model has a total of 126 equations representing eight crops, five livestock and five dairy commodities, as well as wine, sugar, potatoes and lastly biofuels, which together are referred to as the BFAP Sector Model. The BFAP Sector Model is frequently used for generating baseline projections and conducting a wide range of scenario analysis. The original or Old Broiler Model, which forms part of the BFAP Sector Model, was constructed in 2003 when the first version of the BFAP Sector Model was developed. Over the past view years there have been a number of occasions where the stability of the broiler model seemed to be questionable, especially when more “drastic scenarios”, for example the impact of Avian Influence on the South African broiler industry, were analysed. The original version of the broiler model was not statistically estimated but synthetically constructed, mainly based on sound micro and macro economic principles and theory. The main objective of this dissertation is, therefore, to attempt the construction of an updated broiler model that has improved abilities to generate baseline projections and scenario analysis that capture salient features of the South African broiler market within the BFAP sector modelling framework. The performance of the updated model is compared to the original broiler model to determine whether the new model is performing better. The New Broiler Model is a partial equilibrium model built using new production, consumption, trade and price data as well as a new feed inclusion index. The ordinary least squares (OLS) method was used to estimate the individual equations and their statistical significance was evaluated using typical statistical tests for individual regressions using OLS estimators. These initial tests indicated that the individual equations fit the historical data well, but the per capita consumption and ex abattoir price equations were found to be wanting in terms of their economic significance and especially their ability to generate reliable projections into the future. Consequently the equations were adjusted, thus becoming synthetic equations. The dynamic system structure that resulted from the combination of the individual equations makes it necessary to examine the performance of the overall model when linked to the rest of the BFAP Sector Model. This was done by comparing the results of the Old and New Broiler Models using the baseline projections and performance when dealing with scenario type questions. The elasticities and the results for the scenario analyses indicate that the New Broiler Model is generally less sensitive to changes in exogenous factors than the Old Broiler Model. The change in closure of the model, from making use the price equilibrator approach to an approach where a net import identity is used, is the most significant change that was made to the model and has introduced a lot more stability in the broiler model and also the BFAP Sector Model. Although the enhanced stability is useful within the context of the total BFAP sector model, the sensitivity that is lost in the New Broiler Model could lead to the underestimation of the impacts of exogenous factors on the broiler industry. To summarise, this study was conducted for an industry that is characterised by strong and consistent increasing trends in production and consumption in the presence of a constantly decreasing real broiler price. These strong trends influence any form of statistical estimation procedure that is undertaken. To certain degree one can argue, that the key objective of this study, namely to improve the performance and stability of the broiler model within the BFAP sector model was achieved. However, the advantages over the original broiler model are not as clear as was originally anticipated and there is still substantial work that can be done to improve the model. Most of these potential enhancements do, however, require the buy in of various role-players in the broiler industry together with more detailed data sets than those that are currently available. Copyright / Dissertation (MSc(Agric))--University of Pretoria, 2010. / Agricultural Economics, Extension and Rural Development / unrestricted

This final work is aimed at the concept of relationship between exchange rate and interest rate differential. The introductory part briefly describes exchange rate as a macro-economical parameter, which can be seen in many different systems of exchange rate. Next part consists of theoretical principles of uncovered interest parity and the dynamics of this process and also the process of international Fisher effect. In the analysis part the relation between interest rate and exchange rate is explored in various conditions of exchange rate arrangements in the countries of Denmark, Norway, Sweden and Slovakia. The uncovered interest parity is valued by graphic analysis made by calculation of the theoretical rate based on uncovered interest parity and the off-set index rate. International Fisher effect is tested on the graph of change in exchange rate depending on the interest rate differential. The graphic analysis is followed by the analysis of linear regression. Afterwards with the use of VAR model we find not only the dependence of exchange rate on interest rate differential but also whether the interest rate differential is dependent on exchange rate or not.

Primary objective of this thesis was to analyse the relationship between exchange rate and interest rate within borders of a small open economy. Different theoretical approaches often present us with various, sometimes even opposing conclusions when it comes to the matter of direction and intensity of the causal influence between these two variables. From author's point of view it is important to perceive the interaction between exchange rate and interest rate as a dynamic process rather than a static relationship. The empirical analysis was conducted on monthly time series (2000-2012) of three selected small open economies -- Poland, Hungary and Czech Republic. Graphical analysis, linear regression, vector autoregression and cointegration analysis were selected as suitable tools for meeting the objective of this thesis. Models themselves presented us with interesting conclusions, for example a proof of the international Fisher effect, exchange rate causally affecting the interest rate (interest rate differential) in case of spot rates against euro. Another curious phenomena was the inflow of foreign debt capital, which, as it seems, was actually pulling the exchange rate down rather than pushing it up due to rising indebtedness of the economy.

The goal of thesis is to clarify the nature of the exchange rate and interest rate risk and the possibility to describe the management of these risks. It represents the individual tools used to ensure the exchange rate and interest rate risk and the specific examples explaining the principle of their functioning. The thesis is divided into three parts - the exchange rate hedging, interest rate hedging and risk management, or a summary of each procedure, a brief guide for managers of companies involved in the risk of fluctuations in exchange rates or interest rates touching. Case studies of specific examples shows the possibilities of treatment of exchange rate risk - the exporter trading currency pair EUR / CZK.

This diploma thesis evaluates out-of-sample predictive ability of exchange rate models. The first part of the thesis summarizes existing empirical findings about exchange rate predictability and describes exchange rate models chosen to be evaluated. The second part of the thesis evaluates predictive ability of purchasing power parity, uncovered interest parity, monetary model and Taylor rule model. The exchange rate models are evaluated on CZK/EUR and CZK/USD currency pairs. The analysis is made using quarterly data from 1999 to 2013, while 2009 to 2013 period is reserved for forecast evaluation. The predictive ability of exchange rate models is evaluated in one quarter, one year and three years horizons. The exchange rate models are specified in first differences and estimated by ordinary least squares method. The forecasts are made using rolling regression. The exchange rate models are evaluated using RMSE, Theil's U, CW test and direction of change criterion. The diploma thesis concludes with description of own empirical findings.

Using a sample of 141 U.S. small-cap industrial firms, I examine the firm characteristics that influence its use of foreign exchange derivatives to hedge exchange rate risk. Companies in the industrial sector produce goods and services that are used for the production of another final product. The performance of this sector is closely correlated to the level of demand from the final consumer. I find firm size, the amount of foreign sales, and firm liquidity influence the firm's decision to use foreign exchange derivatives to hedge exchange rate risk. For those firms that hedge exchange rate risk using derivatives, a second test examines the firm characteristics that influence the extent of its hedging activities. I find the extent of hedging is influenced by the amount of foreign sales, the amount of foreign assets, and the number of foreign subsidiaries the firm operates. A final test examines whether certain firm characteristics influence its decision to use options as part of its hedging operations. I find no evidence that the firm characteristics examined herein influence that decision.

The political economy of the exchange rate explains different approaches within the integration process of the European monetary union. The changing character of exchange rate pass-through into the foreign trade prices changes not only the international economy paradigm, but also the attitude to the exchange rate political economy. The study solves the incentives to the different exchange rate arrangement choice during the transformation and integration period in the Central and East European countries. It follows with the analysis of the industry structure in these economies. It discusses the existence of its direct and indirect channel of influencing the exchange rate politics. Article solves the hypothesis of interest group formation in regard to the exchange rate policy (the euro adoption) and the intergovernmental bargaining as well as the bargaining within the economy. The industry analysis results confirm the set hypothesis, in which the heterogenity of industry structure explains the heterogeneous approach to the exchange rate politics during the transformation process in monitored economies. The redistributive change of Hungarian exchange rate policy is discussed in connection with the change of subsidies flow within the political cycle. We discuss the impact of current account adjustment on the tradable and nontradable sector in member countries of currency union -- Euro zone. The current account adjustment associated with the adjustment of the net export's deficit caused by the drop in the domestic absorption evokes the increase in the relative price of the nontradable sector. The paper discusses this hypothesis within framework of the Portuguese current account adjustment, which is the result of European financial integration in catching-up countries. The common monetary policy and common currency cannot offset the negative impact of nontradable price increase within the internal expenditure switching effect and also can not support exporters within the external expenditure effect.. The Portuguese current account adjustment was not followed by the currency depreciation and the tradable price increase. The cost of the currency asymmetric response were born by the tradable mark-up decrease, the falling decrease in nontradable wages and employment and finally by the nontradable mark-up and employment decrease.