Zugl.: Vallendar, WHU - Otto Beisheim School of Management, Diss., 2008

<p> </p><p>The purpose of this research paper is to find how much risk is involved in investing emerging market debt. Emerging markets are becoming a hub for foreign investors either that is an equity or debt investment. The risk is the important element for investors. As for emerging markets the most important risk that investor can face is exchange rate and political risk. I used Augmented Dickey-Fuller to carry out unit roots and johansen cointegration analysis of exchange rates and political risk in emerging markets. My result shows that individual variables are integrated order one, means unit root exist. This shows that political risk tends to follow a random walk. My finding suggests that there is a long run relationship between political risk and exchange rate. As the political risk increase exchange rate also fluctuate with relation to political situation.</p><p> </p>

The dissertation investigates the effects of real exchange rate undervaluations upon long-run economic growth and development and focuses on three issues. Rodrik (2008) claims that weak institutions hurt the development of the tradable sector more than that of the nontradable sector and that undervaluation can foster growth by diminishing the distortion created by weak institutions between the two sectors. Using the International Country Risk Guide (ICRG) dataset on four components of institutional quality, Chapter One of my dissertation examines the effects of investment profile, law and order, corruption, and bureaucratic quality upon the relative development of the tradable sector to the nontradable sector, which is measured by the ratio of industry value added to services valued added. On the basis of comparison of the two sectors, the panel evidence of 131 countries indicates that none of the four components mentioned above is positively associated with the relative development of the tradable sector to the nontradable sector. That is, the tradable sector does not suffer disproportionately (compared to the nontradable sector) from institutional weaknesses. Our results cast skepticism upon one of Rodrik's explanations on the growth-promoting effects of real undervaluation because the existence of such a distortion is not supported empirically. Chapter Two concentrates on the effect of real undervaluations on one key aspect of economic development, the income distribution. Based upon the recent availability of an undervaluation index and two databases on Gini coefficients, this study investigates how real undervaluations affect levels and changes in income inequality. The panel evidence of 136 countries indicates that real undervaluations are associated with a decline in levels of income inequality but have no significant association with changes in income inequality. Therefore, the relationship between real undervaluations and levels of income inequality is likely to stem from reverse causality. My main findings may help policymakers who attempt to use an undervaluation policy fully realize that real undervaluations will not hurt the distribution of income. Moreover, I also revisit Rodrik's growth regressions so as to investigate whether or not the same positive association between real undervaluations and economic growth held in Rodrik (2008) reoccurs in my sample. The results are somewhat mixed, depending upon which dataset is employed. Motivated by two distinct characteristics in economic performance of East Asia and Latin America in the past half century, Chapter Three explores the possibility that the difference in levels of domestic savings is one of the historical reasons that countries pursued different exchange rate policies. My panel evidence is somewhat mixed. The results based on the sample of all countries are consistent with the theoretical claim that real undervaluations can mitigate more imbalances and stimulate higher growth when the level of domestic savings is high. However, for the sample of developing countries, the results indicate that initial level of domestic savings does not matter for the growth-promoting effect of real undervaluation. On the contrary, it does matter across developed countries where internal imbalances are supposed to be less common relative to developing countries. This study suggests that more theoretical and empirical investigation is necessary in the future to disclose further the mechanism through which real undervaluations boost long-run growth.

The Group of Twenty, or G20, is the premier forum for international cooperation on the most important aspects of the international economic and financial agenda. G20 brings together the world's major advanced and emerging economies. It together represents around 90% of global GDP, 80% of global trade, and two thirds of the world's population according to the report of G20 official website. The first essay investigates the effects of money supply on selected G20 economies. According to the Nobel Laureate Friedman, money shocks will effect output in the short-run and will effect prices in the long-run. Also, the increased monetary growth tends to lower interest rates at first, but later on, the resulting acceleration in spending and inflation produces a rise in demand for loans, which tends to raise interest rates. The purpose of this study is to test Friedman's proposition empirically for 12 selected countries from G20 during 1980 to 2010. Our findings suggest that both price level and output have similar responses to monetary innovation in most sample countries, which is not consistent with Friedman's proposition. However, the interest rates' responses of these countries validate the Friedman's proposition. In addition, we find that money Granger-causes output, prices, and interest rates in most countries. Although our results do not provide strong evidences about the responses of output and prices as Friedman stated, we find that money matters, and policy makers should be cautious to adopt expansionary monetary policy to stimulate economic growth in these countries. The second essay investigates the relationship between private sector and exchange rates in 15 selected countries from G20 during the period 1980-2010. In examining the determinants of exchange rate, many researchers have focused on the role of public sector only. However, we believe that private sector is also an important component of an economy, and private sector has influences on the exchange rate. This study investigates the relationships between private sector and exchange rates in 15 countries from G20 during the period 1980-2010. We note that private sector investment is important for exchange rates in most developed countries. Also, exchange rates are found to Granger-cause private sector investment. Thus, there are feedback relationships between private sector and exchange rates in most sample countries. The study provides vital information relevant for policy formulation and implementation. In order to stabilize the exchange rates, policymakers need to adjust strategies to control private capital inflows. To provide a sound environment for private sector development, governments should differentiate the types of exchange rates risk in order to design and implement consistent policy to deal with issues at hand. In addition, exports play a key role in the economies of most developing countries. Many economists such as Ram (1987) and Ekanayake (1999) prove that good exports performance make big contribution to economic growth. The third essay investigates the hypothesis whether exports volume of Indonesia, Philippine, Singapore, and Thailand are effected by exchange rate volatility of their main export receiving countries, i.e., U.S. and Japan. During the period 1980-2010, exports volume in Indonesia, Philippine, Singapore, and Thailand increased fast, and their main export receiving countries were the developed countries, i.e., U.S. and Japan. This study mainly investigates the effects of exchange rate volatility of U.S. and Japan on the exports volume of these exporting countries. Our findings suggest that there are impacts though exchange rate volatility of U.S. and Japan on exports volume of Indonesia, Philippine, Singapore, and Thailand. To investigate this topic is important to help exporters avoid risk and policymakers justify their policies and exchange rates.

The United States is the world’s largest poultry producer and exports about 18 percent of its total poultry production. It is also second largest exporter of broiler meats. Reports from the USDA predict that global import demand for poultry is expected to increase over the next 10 years, with the US accounting for 34% of the global poultry exports. The present study estimates the effects of exchange rate and US poultry export price on the quantity of poultry imports by the top five trading countries, namely Mexico, Canada, China, Hong Kong and Russia, during the period 1993 to 2012, using a double-log multiple regression model. Comparison of the effects across the countries was made possible with the incorporation of dummy variables for each country with Hong Kong serving as the baseline. The results demonstrated that the effect of exchange rate and poultry price, and per capita GDP on the quantity of poultry imported by Russia , Canada, and China is statistically different from Hong Kong and the rest of the countries in this study. Exchange rate appears to have a negative and statistically significant effect on US quantity of poultry exports. Export price and per capital GDP shows a positive and statistically significant impact on US poultry exports, although the result differs for individual countries. Overall, this study suggests that the effect of exchange rate and export price on the quantity of US poultry exports varies across countries. Key Words: Exchange rate, Double-log regression, US poultry price, Poultry exports

We examine the potential gains of using exchange rate forecast models and forecast combination methods in the management of currency portfolios for three exchange rates: the euro versus the US dollar, the British pound, and the Japanese yen. We use a battery of econometric specifications to evaluate whether optimal currency portfolios implied by trading strategies based on exchange rate forecasts outperform single currencies and the equally weighted portfolio. We assess the differences in profitability of optimal currency portfolios for different types of investor preferences, two trading strategies, mean squared error-based composite forecasts, and different forecast horizons. Our results indicate that there are clear benefits of integrating exchange rate forecasts from state-of-the-art econometric models in currency portfolios. These benefits vary across investor preferences and prediction horizons but are rather similar across trading strategies.

Fundação de Amparo à Pesquisa do Estado do Rio de Janeiro / Esta dissertação tem por objetivo analisar o comportamento da balança comercial no Brasil no período de 1999 a 2006 e buscar compreender os fatores que contribuíram positivamente para a evolução das exportações, compensando os efeitos negativos advindos do movimento de apreciação da taxa de câmbio ocorrido a partir de 2003. Para tanto, a partir da adaptação de um modelo de oferta e demanda das exportações, elaborado por Goldstein e Khan (1978), utiliza-se dois métodos de estimação para a obtenção das elasticidades com relação às variáveis explicativas do modelo. O primeiro método consiste na estimação de um modelo simultâneo de oferta e demanda das exportações e o segundo método consiste no modelo de cointegração proposto por Engle e Granger. Em ambos os casos, as exportações foram desagregadas por classes de produtos (manufaturados, semimanufaturados e básicos), além do total das exportações.Do lado da demanda, os resultados estimados em ambos os métodos de estimação, tanto para o longo como para o curto prazo, confirmam as hipóteses levantadas ao longo do estudo ou seja, o crescimento dos preços dos produtos exportados, assim como o crescimento da renda mundial, foram bastante relevantes para o crescimento das exportações em todas as classes de produtos analisadas. Em relação à oferta de exportação, a taxa de utilização da capacidade produtiva e os preços dos produtos exportados estiveram co-relacionados positivamente com o quantum ofertado, enquanto que a taxa de câmbio, ao contrário do esperado, apresentou elasticidades negativas. / The objective of this dissertation is to analyze the behavior of the trade balance in Brazil in the 1999-2006 period and to understand the factors that contributed positively for the evolution of the exports, compensating the negative effect of exchange rate appreciation. For in such a way, we adapt the model of supply and demand of exports, elaborated for Goldstein and Khan (1978), in order to use two estimation methods to calculate the elasticity of the independent variables of the model. The first method consists of the estimation of simultaneous model for exports supply and exports demand; the second method is the model of cointegration purposed by Engle and Granger. In both cases, the exports were disaggregated by product classes (manufacturing, semi-manufacturing and basics), besides total exports. From exports demand side, the estimated results in both methods, in the short and long run, confirmed the initial hypothesis that is, the growth of exports prices and the growth of world income were significant for the exports growth in all product classes. In the case of exports supply, the productive capacity and price of exports were positively correlated to the export quantum, while the exchange rate presented a negative elasticity.

Cette thèse explore la transmission des variations du taux de change sur les prix d’exportation et d’importation à un niveau agrégé et désagrégé pour quatre pays développés. Nous utilisons plusieurs méthodes économétriques récentes afin de fournir des mesures robustes sur la transmission du taux change. Notre recherche soutient la présence d’asymétrie dans la transmission des variations du taux de change sur les prix. En outre, nous constatons que le coefficient de transmission est plus élevé lorsqu’on tient compte de cette asymétrie. Par conséquent, la non prise en compte de ces asymétries, si elles existent, pourrait conduire à des résultats trompeurs. Ce résultat a d’importantes implications sur les politiques monétaires. En effet, les décideurs devront faire face à un dilemme lorsqu'ils doivent choisir entre la stabilité des prix et la compétitivité-prix à l'exportation. De plus, dans cette recherche, nous testons si le degré d’ouverture affecte le degré de report du taux de change. Les résultats montrent, que dans la plupart des cas, il n'y a pas de rôle significatif pour le degré d'ouverture / This thesis explores the transmission of exchange rate movements into export and import prices at both the aggregate and the disaggregate level for four advanced countries. We use several up-to-date econometric methods in order to provide robust measures of exchange rate pass-through. The main finding of our research is to provide clear support for the presence of asymmetry in the exchange rate pass-through, i.e. the fact that appreciations and depreciations are pass through prices in a different magnitude. Moreover, we find that, in many cases, the pass-through coefficient is higher when we take into account this asymmetry. Therefore not taking into account potential asymmetries may lead to wrong results in the ERPT estimation. This finding has several important implications for monetary policy. Indeed, policy-makers will face a dilemma as they try to pursue price stability and export competitiveness. Moreover, our research also studies whether the degree of trade openness affects the exchange rate pass-through. The results in this case show that there is no significant role for the degree of trade openness for most cases.

Fundação de Amparo à Pesquisa do Estado do Rio de Janeiro / Esta dissertação tem por objetivo analisar o comportamento da balança comercial no Brasil no período de 1999 a 2006 e buscar compreender os fatores que contribuíram positivamente para a evolução das exportações, compensando os efeitos negativos advindos do movimento de apreciação da taxa de câmbio ocorrido a partir de 2003. Para tanto, a partir da adaptação de um modelo de oferta e demanda das exportações, elaborado por Goldstein e Khan (1978), utiliza-se dois métodos de estimação para a obtenção das elasticidades com relação às variáveis explicativas do modelo. O primeiro método consiste na estimação de um modelo simultâneo de oferta e demanda das exportações e o segundo método consiste no modelo de cointegração proposto por Engle e Granger. Em ambos os casos, as exportações foram desagregadas por classes de produtos (manufaturados, semimanufaturados e básicos), além do total das exportações.Do lado da demanda, os resultados estimados em ambos os métodos de estimação, tanto para o longo como para o curto prazo, confirmam as hipóteses levantadas ao longo do estudo ou seja, o crescimento dos preços dos produtos exportados, assim como o crescimento da renda mundial, foram bastante relevantes para o crescimento das exportações em todas as classes de produtos analisadas. Em relação à oferta de exportação, a taxa de utilização da capacidade produtiva e os preços dos produtos exportados estiveram co-relacionados positivamente com o quantum ofertado, enquanto que a taxa de câmbio, ao contrário do esperado, apresentou elasticidades negativas. / The objective of this dissertation is to analyze the behavior of the trade balance in Brazil in the 1999-2006 period and to understand the factors that contributed positively for the evolution of the exports, compensating the negative effect of exchange rate appreciation. For in such a way, we adapt the model of supply and demand of exports, elaborated for Goldstein and Khan (1978), in order to use two estimation methods to calculate the elasticity of the independent variables of the model. The first method consists of the estimation of simultaneous model for exports supply and exports demand; the second method is the model of cointegration purposed by Engle and Granger. In both cases, the exports were disaggregated by product classes (manufacturing, semi-manufacturing and basics), besides total exports. From exports demand side, the estimated results in both methods, in the short and long run, confirmed the initial hypothesis that is, the growth of exports prices and the growth of world income were significant for the exports growth in all product classes. In the case of exports supply, the productive capacity and price of exports were positively correlated to the export quantum, while the exchange rate presented a negative elasticity.

Uma série de relações de simultaneidade definem a estrutura de determinação dos preços no agregado para uma economia aberta. Além destas inter-relações a natureza das variáveis, seguindo trajetória não estacionárias quando individualmente analisadas mas de equilíbrio no sentido de que se movimentam conjuntamente no longo prazo, faz com que a estrutura para a análise empírica da relação entre a taxa de câmbio e os preços consista em um sistema complexo sobre o qual tem relevância tanto a dinâmica de curto quanto a dinâmica de longo prazo entre das variáveis. O objetivo deste trabalho é manter-se coerente a este contexto para obter estimativas do repasse cambial de longo prazo para os preços da economia brasileira. Isto é possível utilizando o arcabouço metodológico dos modelos Vetores de Correção de Erros (VCE), sendo assim, a principal contribuição deste trabalho consiste na aplicação da metodologia dos modelos Estruturais de Vetores de Correção de Erros (SVCE), introduzidos em King et. al. (1991). Além disso o trabalho discute a identificação do repasse cambial a partir das funções de resposta ao impulso para variáveis não estacionárias, obtidas para os modelos VCE e SVCE, por meio das quais é possível identificar o longo prazo e contrastar os diferentes resultados para o repasse cambial obtidos de acordo com este arcabouço metodológico. / There is a series of simultaneous relations that define the structure of pricing determination in aggregate for an open economy. Besides these interrelations, the nature of the variables, following non-stationary trajectory when analyzed individually but in equilibrium in the sense that, in the long run they move together, causes the structure to the empirical analysis of the relationship between the exchange rate and prices consists in a complex system over which has relevance both the short-run and long-term dynamics between the variables. The objective of this work is to remain consistent in this context to obtaining estimates of long-term exchange pass-through to the aggregate prices of Brazilian economy. This is possible using the methodological framework of the Vector Error Correction models (VEC), inside which, the main contribution of this work consists in applying the methodology of Structural Vector Error Correction models (SVEC), introduced in King et. al. (1991). Furthermore, the paper discusses the identification of exchange rate pass-through using the impulse response functions for non-stationary variables, obtained for the VEC and SVEC models, through which it is possible to identify the long-term exchange rate pass-through and compare the different results obtained according to this methodological framework.