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The thesis is a contribution to the literature on the study and modelling of exchange rate variability, and contains seven chapters. Chapter 1 motivates the study by providing a historical context about its importance, sketches the main themes of the thesis, and gives an overview of the Norwegian economy since the empirical studies are on the Norwegian krone against the Euro exchange rate. Chapter 2 makes a distinction between period and within-period exchange rate variability, a distinction which is of special interest when studying variability across different exchange rate regimes. Also, the exponential model of variability (EMOV) is put forward as a particularly convenient framework for explanatory exchange rate variability modelling. Chapter 3 makes full fuse of these ideas in studying the impact of market activity on exchange rate variability in the case of Norway. The main findings of this study are that the impact of short-term change in market activity, as measured by relative week-to-week changes in quoting frequency, is positive and statistically significant for both definitions of variability, and that the impact is relatively stable across three different exchange rate regimes. Also, our results do not suggest that the persistence in variability can be explained by persistence in the level of quoting. Chapter 4 undertakes an out-of-sample forecast evaluation of general to specific (GETS) modelling of exchange rate volatility, and our results suggest GETS-derived models are particularly useful in conditional forecasting. Chapter 5 studies the relation between exchange rate variability, market activity and heterogeneity using a measure of spot NOK/EUR transaction volume from banks within Norway's regulatory borders. Our results do not support the hypothesis that short-term Norwegian market activity has an impact on variability. However, we do find some support of the hypothesis that large and small banks have an opposite impact through their long-term activity. Chapter 6 proposes a solution to a shortcoming in the first stage of David F. Hendry's reduction theory by interpreting the underlying outcome space as a set of possible worlds made up of indeterministic and historically inherited particulars. Finally, chapter 7 concludes and provides suggestions for further research.

In this dissertation we investigate joint optimal capacity investment, pricing and production decisions for a multinational manufacturer who faces exchange rate uncertainties. We consider a manufacturer that sells its product in both domestic and foreign markets over a multiperiod season. Because of long-lead times, the capacity investment must be committed before the selling season begins. The exchange rate between the two countries fluctuates across period and the demand in both markets is price dependent. In the first part, the model considers three scenarios: (1) early commitment to price and quantity with central sourcing, (2) postponement of prices and quantities with central sourcing, and (3) local sourcing. We derive the optimal capacity and the optimal prices for each scenario, and investigate the impact of the exchange rate parameters and the length of the selling season on optimal capacity investment, production allocation, and pricing decisions. We observe that while the price and production decisions in the domestic market are independent of the exchange rate under early commitment and local sourcing scenarios, the exchange rate between two countries directly impacts these decisions under the postponement setting. We identify thresholds and gain insights on investment costs, market potentials, exchange rate drifts, and selling season length for the choice of entering a foreign market under all scenarios. In the second part of this dissertation, we consider a duopoly competition in the foreign country. We consider a single period setting and we model the exchange rate as a random variable. We assume two scenarios: (1) Exogenous Model, where the price of the foreign manufacturer is set a priori, and (2) Endogenous Model, where the prices are set simultaneously based on a Nash Game outcome. In the Exogenous Model, we study the impact of exchange rate and foreign manufacturer's price on optimal capacity and prices. In the Endogenous Model, we investigate the impact of competition and exchange rate on optimal capacities and optimal prices. We show how competition can impact the decision of the home manufacturer to enter the foreign market.

The thesis is a contribution to the literature on the study and modelling of exchange rate variability, and contains seven chapters. Chapter 1 motivates the study by providing a historical context about its importance, sketches the main themes of the thesis, and gives an overview of the Norwegian economy since the empirical studies are on the Norwegian krone against the Euro exchange rate. Chapter 2 makes a distinction between period and within-period exchange rate variability, a distinction which is of special interest when studying variability across different exchange rate regimes. Also, the exponential model of variability (EMOV) is put forward as a particularly convenient framework for explanatory exchange rate variability modelling. Chapter 3 makes full fuse of these ideas in studying the impact of market activity on exchange rate variability in the case of Norway. The main findings of this study are that the impact of short-term change in market activity, as measured by relative week-to-week changes in quoting frequency, is positive and statistically significant for both definitions of variability, and that the impact is relatively stable across three different exchange rate regimes. Also, our results do not suggest that the persistence in variability can be explained by persistence in the level of quoting. Chapter 4 undertakes an out-of-sample forecast evaluation of general to specific (GETS) modelling of exchange rate volatility, and our results suggest GETS-derived models are particularly useful in conditional forecasting. Chapter 5 studies the relation between exchange rate variability, market activity and heterogeneity using a measure of spot NOK/EUR transaction volume from banks within Norway's regulatory borders. Our results do not support the hypothesis that short-term Norwegian market activity has an impact on variability. However, we do find some support of the hypothesis that large and small banks have an opposite impact through their long-term activity. Chapter 6 proposes a solution to a shortcoming in the first stage of David F. Hendry's reduction theory by interpreting the underlying outcome space as a set of possible worlds made up of indeterministic and historically inherited particulars. Finally, chapter 7 concludes and provides suggestions for further research.

Abstract The purpose of this paper is to research the countries' exchange rates. The paper is organized around the empirical modeling method which is devised by Van Dijk, D.; Terӓsvirta, T.; Franses, P.H.(2002) and Van Dijk, D.; Terӓsvirta, T.; González, A.(2005). It consists of estimation, specification tests, and forecast stages. The data is chosen from 1974M1 to 2008M12. We set the data from 1974M1 to 2003M12 as in-sample period, and from 2003M1 to 2008M12 as out-of-sample period. The macroeconomic variables considered in this paper include nominal exchange rates and real exchange rates. We get four important empirical results in this paper. First, the STAR model shows that every countries exists ¡§eleventh month effects¡¨. Second, the coefficient of nonlinear in Denmark¡¦s, France¡¦s, Germany¡¦s, Italy¡¦s, Spain¡¦s and UK¡¦s model are statistically significant. This result implies that the government of Japan had been intervening significantly in foreign exchange markets. And the government of other countries had been not intervening in foreign exchange markets. Third, the gamma value of the Panel model is statistically significant but slight. We can conclude that nominal exchange rates and real exchange rates exist relationship in long terms but not in short terms. Fourth, the forecast abilities of two models are almost better than random walk model.