In the past, a lot of studies about the comparison of exchange rate forecasting models have been carried out. Most of these studies have a similar result which is the random walk model has the best forecasting performance. In this thesis, I want to find a model to beat the random walk model in forecasting the exchange rate. In my study, the vector autoregressive model (VAR), restricted vector autoregressive model (RVAR), vector error correction model (VEC), Bayesian vector autoregressive model are employed in the analysis. These multivariable time series models are compared with the random walk model by evaluating the forecasting accuracy of the exchange rate for three North European countries both in short-term and long-term. For short-term, it can be concluded that the random walk model has the best forecasting accuracy. However, for long-term, the random walk model is beaten. The equal accuracy test proves this phenomenon really exists.

The purpose of this thesis is to examine how a depreciation in the exchange rate affects the trade balance in an economy over time. The outcomes of a depreciation are possible to analyze through the J-curve phenomenon that shows the relation between the exchange rate and the trade balance both in the short-run and the long-run. The data used in this thesis cover 39 countries and their quarterly changes in exchange rate between 1982 and 2005. The largest depreciation for each country during these years was detected and is the base for this research. In this thesis, focus is on the trade ratio rather than the trade balance for empirical purposes. The relation between the largest depreciations and its effect on the trade ratio are examined in two sets of regressions. The results show no evidence of a J-curve in neither one of the sets of regressions, even though the trade ratio is positively affected by the depreciation. When testing only for significantly large depreciations in the exchange rate the affect on the trade ratio is stronger, all else equal. According to the findings in this thesis, a depreciation in the real effective exchange rate causes the trade ratio to increase immediately and then decrease over time. The conclusion is that the findings are not in line with the J-curve phenomenon tested for; however, they support standard trade theory with the Marshall-Lerner condition being met i.e. a depreciation in the exchange rate will affect the trade balance positively.

The main purpose of this study is to investigate relationship between foreign exchange reserves and RMB exchange rate. In order to obtain a precise result, foreign trade situation and GDP are also considered. The monthly data is collected over period 1994 to 2011, and processed through ADF test, Johansen test, and Granger causality test. Final results indicate that there is a long-term equilibrium relationship existing between foreign exchange reserves and RMB exchange rate. Moreover, any changes of foreign exchange reserves would lead to the fluctuation of RMB exchange rate but not vice versa. At last, the dummy variables are added into regression model to test influence from the reform of RMB exchange rate regime. Results suggest that regime reform not only increase flexibility of RMB exchange rate, but also slow down the accumulation of foreign exchange reserves.

<p>This dissertation is a collection of papers with the unifying objective being to better understand crash risk in foreign exchange markets. I investigate how exposure to the risk of currency crashes is able to provide a unified rationalization of the returns of various sorted currency portfolios.</p><p>In the first chapter, I identify an aggregate global currency skewness risk factor, which I denote SKEW. Currency portfolios that have higher average excess returns covary more positively with this risk factor. They suffer losses in times when high interest rate investment currencies have a greater tendency to depreciate sharply as a group relative to low interest rate funding currencies. Consequently, they earn higher average excess returns as reward for exposure to this risk. I create three sets of sorted currency portfolios reflecting three distinct sources of variation in average excess currency returns. The first set sorts currencies based on interest rate differentials. The second set sorts currencies based on currency momentum. The third set sorts currencies based on currency undervaluedness relative to purchasing power power parity (PPP) implied exchange rates. I find that differences in exposure to the global currency skewness risk factor can explain the systematic variation in average excess currency returns within all three groups of portfolios much better than existing foreign exchange risk factors in the literature.</p><p>In the second chapter, I build on the first chapter by studying the extent to which currency crash risk is predictable or unpredictable and whether the pricing power of aggregate currency skewness, uncovered in the first chapter, is due to unpredictable or predictable crash risk. Focusing on currency crash risk proxied using realized currency skewness at both the individual currency level and at the aggregate level using the SKEW risk factor introduced in the first chapter, I investigate whether either form of crash risk is predictable using only past information about crash risk. In particular, I use past information on both individual currency level and aggregate level measures based on both lagged realized currency skewness and lagged option implied risk neutral skewness. I find evidence that there is not much predictability at the individual country level or at the aggregate level over the full sample period considered. However, there is some evidence of predictability at the aggregate level since 1999, and especially so when option implied risk neutral skewness measures are used. Additionally, I use the predictions of SKEW and conduct asset pricing similar to that in chapter 1 using predicted and unpredicted SKEW to see whether its pricing power comes from predictable or unpredictable components. I find evidence that it is unpredictable currency crash risk that is very important, as the asset pricing results are largely identical when either SKEW or SKEW forecast errors are used. and whether the pricing power of</p> / Dissertation

Since the floating exchange rate regime was set up in 1973, the issue of exchange rate has been concerned not only by corporate organizations but also folks. For multinational corporate institutions, exchange rate plays an important role in their profit. For folks, exchange rate influences the cost of going abroad. What¡¦s more, it is also one of investment tool for making profits. There are many empirical researches attesting that the term structure can forecast economic growth, and the exchange rate can be predicted by economic growth. However, no researches have shown the direct relationship between the term structure and the exchange rate. Therefore, the main purpose of this article is to examine whether the term structure can predict the exchange rate or not, and then to us this result to compare with the empirical result in which many researches claim that the real long term interest rate can predict the exchange rate very well. In the final step, we use the method of out of sample test to examine our model and random work model to make our examination more robust. In conclusion, our empirical research attests that the relationship between the term structure and the exchange rate is significantly negative. This result also shows that the ability of our model¡¦s prediction is better than that of others.

This dissertation includes two chapters in the field of international finances about foreign exchange rate predictability and testing purchase power parity. In each chapter, we build the theory, methodology, and the empirical results to present the paper¡¦s construction. The first chapter, we studies whether the pure price inflation rate which is extracted from stock return can help us to test the relative of purchasing power parity in where Asian countries include Malaysia, Korea, Taiwan, Thailand, Hong Kong, and Singapore against the United States. The paper of Chowdhry et al. (2005) argue that relative PPP may not hold for the official price inflation rates which is constructed from consumer price indices, since relative price changes and other frictions cause price to be sticky. Thus, they use the Fisher equation and Fama-French three factors elaborately to build up a model on the nominal return of real risk-free asset to extract the pure price inflation rates. Their argument is supported in the case of Japan, Germany, the United States, and the United Kingdom. We are interested in the case of some Asian countries. So, this chapter, we extend the model and methodology of Chowdhry et al. (2005) to test the relative PPP for Asian countries. If our empirical evidence is firmly supported, it will be a strongly reconfirmed the elaborated idea of Chowdhry et al. (2005). In our study, the PPP rule is not supported for Asian countries since joint null hypothesis of a=0 and b=1 are rejected at all horizons except Taiwan at monthly horizon. The testing results by constrained seeming unrelated regression (SUR) and system equation in pooled data are similar to the tests of country-by-country. Therefore, we apply the methods of panel unite root from Im et al. (2003), Maddala and Wu (1999), and Pesaran (2007) to test the PPP doctrine, and it is strongly supported PPP for Asian countries. The second chapter, we extract the estimated data of pure price inflation by Chowdhry et al. (2005), and use the data to build up a nonlinear STR (smooth transition autoregressive) model by Granger and Ter&#x00E4;svirta (1993), then compare the performance of linear or nonlinear model of exchange rate predictability with random walk model in the United States, the United Kingdom, Japan, and Germany. This study has presented evidences that the extracted inflation rates offer a good predictability on the prediction of exchange rate for the United Kingdom and Germany. Those extracted data in which are calculated from the industry portfolio returns of stock market. The issue of series correlation in regression error does matter the estimated coefficients £]k, thus we estimate the simulation of Gaussian bootstrap distribution for testing variables with Newey West standard deviation in regression estimate. The empirical evidences show that the PPP doctrine affects the predictability performance of exchange rate change by the extracted inflation rates.

This paper investigates whether the ¡§Taylor rule¡¨ can appropriately describe the Central Bank¡¥s monetary policy in Asia-Pacific countries. The countries under consideration were export-oriented countries that adopted floating exchange rate system, and affected by the Asian financial crisis. They include Taiwan, Korea, Philippines, Thailand, Indonesia, Japan, Singapore. In addition we divide the sample period into two sub period based on the mid-1997 outbreak of the Asian financial crisis, to check the robustness of our results from the whole period. Furthermore, we investigate that the central bank cares for the quarterly inflation, or annual inflation. The results over the whole period showed that the Taylor rule describe Central Bank¡¥s monetary policy except for Thailand, Japan and Singapore. The Taylor rule can not describe Japan's monetary policy when the period before Asian financial crisis is adopted. Besides, in addition to Thailand, the central banks concerned quarterly inflation rates than annual inflation rates.

The RMB exchange rate started to be a widely international issue discussed with Sino-U.S. relations of Economic since 2002.The main Objective of this study is finding the causes of undervaluing and pressures of facing. However, China¡¦s Financial Security is closely related to the process participating in the international system of finance, so this article is concentrated in the scope of correlate research of RMB exchange rate, and analyzed to find what pressures China facing and what policies China choosing. The causes which nominal exchange rate was biased against the real exchange rate are discriminated between labor factor and interest factor, with observing the change of balance of payment and foreign exchange reserves, so the foreign market unequilibrium can be explained further by analyzing the flow and capital. Finally, the strategic consider of U.S. is also the one of factors that influences RMB exchange rate despite of the economic risks in China. perspectives of international politics in Pressuring RMB exchange rate or opening markets are considered on the coordination of interest groups¡Bcongress and government of United States. The conclusion revealed the main reason that China is now facing major secure threats, there are looseness in capital controls, and rigidity in foreign exchange regimes. This threats result in failing to diversify its investment risk of foreign exchange and causing its monetary policy much pressure. The other hand, The purposes of putting pressure on RMB exchange rate by U.S. reflected that they not only transferred the responsibility of unemployment and deficit but also showed the need of domestic politics and the consideration of international politics, so the strength of pressure was not the same in the time series. Therefore, the study argues that the dispute of Sino-U.S. exchange rate was not only the outcome of interaction between two countries¡¦ trade but also this regime of China and purpose of U.S. should be discussed and observed continually.

With financial liberalization and economic globalization, international trade and capital transactions result in larger exchange rate fluctuations than in the past. Besides, it can¡¦t be ignored that the change of exchange rate influences the economics and real exchange rate which be regarded as the indicator of external competitiveness becomes more important than before, so my paper aims to know not only whether there is stochastic segmented trend in their fluctuation but also the factors which are closely related to regime switches. As we all know that it is significant to forecast the volatility of exchange rate in the global society. A number of previous studies discussed the relationship between exchange rate and fundamentals under the monetary models, however many people found that these models are handicapped in out-of sample forecasting. Therefore, I compare the forecasting performance of the real interest differential monetary (RID) model of Frankel (1979) with the models which I built in the paper. By using the market share of the top ten currencies in 2010 which is published by Bank for International Settlements (BIS) and the fundamentals. The empirical results indicate that fundamentals do not only matter for real exchange rate, but are also related to the switches between the regimes. Besides, the real exchange rates are highly persistent in each regime and the effect of fundamentals is different in different countries. At last, my result suggest that the models which I built in the paper provide better forecast in the yen, pound sterling and New Zealand dollar than the RID model.

The subject of this study is to examine the determinants of the real exchange rate in Taiwan. The sample period is from the first quarter of 1982 to the second quarter of 2011, and the variables include the real exchange rate, terms of trade, productivity differential, the real oil price, reserve differential, real interest rate differential, and the net foreign assets of Taiwan and America. The empirical results show that there is no cointegration between the real exchange rate and independent variables. Using a VAR model, this study finds that although the central bank of Taiwan would intervenes the real exchange rate, the variable related to the economic growth is still significant. At 5% significance level, an increase in the productivity differential leads the real exchange rate to depreciate. In addition, from the result of the granger causality test, this study finds that there exists unidirectional causality from the productivity differential and central bank intervention respectively to the real exchange rate. The effect of central bank intervention on the real exchange rate only persists one period, and the effect of the productivity differential persists two more periods. Therefore, it can be concluded that when estimating the future real exchange rate, it may be useful to take the productivity differential into account.