Includes bibliographical references / This thesis addresses exchange rate behaviour in a de-facto partially dollarized economy. Over the past two decades the Tanzanian Shilling has been increasingly displaced by the United States dollar. This change has been prompted by instability of the local currency, and by the practices of foreign firms, which have used a dual pricing system at rates disadvantageous to the local currency. The implications of Tanzania's dollarization are traced through three related investigations: whether theTanzania Shilling to United States Dollar exchange rate overshoots, whether it has impacted the monetary transmission mechanism, and whether dollarization has substantively affected the pattern of Tanzania's foreign trade. The first study uses the Structural Vector Autoregression to test if the overshooting hypothesis holds for the TZS-USD exchange rate.The results suggest that foreign currency deposits are encouraged by the volatility of the exchange rate.In addition it is noted that the exchange rate demonstrates delayed overshooting, while a contractionary monetary policy leads to appreciation in the exchange rate for at least a year before returning to equilibrium. The determinants of the exchange rate in Tanzania are trade openness, real interest differentials, labour productivity and government expenditure. The second study uses a Bayesian Vector Autoregression to investigate the monetary transmission mechanism in the presence of dollarization. The results indicate that positive shocks on the interest rate contract money supply, which leads to lower output growth and inflation, while the exchange rate appreciates. The degree of dollarization also has a negative impact on the monetary supply of the local currency, as the central bank seeks to maintain a relatively constant rate of total money supply. This has the effect of lowering the inflation and interest rates, and is also associated with further depreciation of the exchange rate. The positive shock on the exchange rate (depreciation) is associated with an increase in dollarization.The aggregate demand shock fuels inflation and, in Tanzania's case, it has increased money supply, due to the persistent demand for real monetary balances. The third study uses a Dynamic Stochastic General Equilibrium to describe the conduct of monetary policy in a small, open, and partially dollarized Tanzanian economy. The structure of the model incorporates the expectations of agents and the dynamic relationships are explained in terms of structural representations that characterize the behaviour of the firm, household and central bank. The parameters in the model are estimated with Bayesian techniques, after it has been applied to Tanzanian data. The effects of individual shocks, including those that may be used to describe the conduct of monetary policy, are then considered. These simulations suggest that despite the existence of partial dollarization in the Tanzanian economy, monetary policy has important, short-term, real effects. The fourth study uses an Autoregressive Distributed Lag approach to investigate the short and long run exchange rate sensitivity of foreign trade. Principal components analysis is also used to reduce the dimension of the dataset. It finds evidence that the depreciation of the Shilling typically has an immediate positive impact on the trade balance, and exchange rate depreciation increases the trade balance in both the short and long run. However, exports show signs that support the J-curve hypothesis, though the associated parameters are not significant. Imports are not reduced by a rise in the Shilling, as traditional theory would suggest. This is ascribed to the country's de-facto partial dollarization. Since over 40 per cent of money supply arecurrently held in dollar denominated accounts, trade is largely immune to domestic currency fluctuations. This study also notesthat the use of foreign currency has tended to rise during periods of substantial economic growth. Although no causality is argued, this does suggest that the parallel use of foreign and domestic currencies is not detrimental to Tanzania's economic growth.

Bibliography: pages 53-56. / The main objective of this paper is to discuss exchange rate policies in Botswana from 1976 to 1994. It is also an attempt to find out how Botswana has responded to exogenous shocks and whether such responses could be used in the future when shocks recur. The paper contends that Botswana's record in responding to shocks has been impressive. This is not to say that previous policy actions in response to shocks would be adequate when shocks occur again. Experience shows that it is difficult to respond to exogenous shocks when they take time to subside.

No description available.

South Africa has become more dependent on portfolio inflow to finance investment and consumption due to the low rate of government and household savings. Therefore, it is important from South Africa‟s perspective to maintain a stable portfolio inflow in order to ensure that the current account deficit does not reach unsustainable levels. However, portfolio inflow is anything but stable in South Africa. The risk associated with this is that when foreigners‟ expectations of South Africa shift, due to any form of instability or risk within the country or even internationally, it leads to massive withdrawals or outflow of funds, which in turn causes the currency to depreciate. The portfolio balance theory on the other hand states that an increase in portfolio inflow leads to the appreciation of the nominal exchange rate, and that this is perceived to work against economic growth. The main objective of this research is to determine the nature of the relationship between exchange rate volatility and portfolio flows, and the extent to which volatility in the exchange rate affect South Africa‟s portfolio inflow. The research uses Vector Autoregressive (VAR) models and quarterly data, ranging from 1995 to 2012 to investigate this relationship. From the VAR models a Granger causality test, as well impulse response functions is used to shed light on the influence of a one-unit shock in both foreign portfolio inflow and exchange rate volatility on the other variables in the model. Exchange rate volatility is measured using both Autoregressive Conditional Heteroscedasticity (ARCH) family models and the conventional standard deviation, in order to control for possible biasness caused by the choice of instrument of volatility. The results showed the nature of the relationship between exchange rate volatility and foreign portfolio inflow to South Africa‟s capital markets can be described as country-dependent and time-varying. South Africa‟s portfolio inflow exhibits high volatility and low persistence that are characteristics normally associated with “hot money”, which is largely driven by foreign investors‟ appetite for short-term speculative gains. The study identified the consistent presence of bidirectional causality between the exchange rate volatility and foreign portfolio inflow to South Africa, irrespective of the measurement of exchange rate volatility. The results also revealed that net portfolio flows are associated with exchange rate appreciation and that foreign portfolio inflow react much stronger to changes in exchange rate volatility than vice versa. / MCom (Risk Management), North-West University, Potchefstroom Campus, 2015

South Africa has become more dependent on portfolio inflow to finance investment and consumption due to the low rate of government and household savings. Therefore, it is important from South Africa‟s perspective to maintain a stable portfolio inflow in order to ensure that the current account deficit does not reach unsustainable levels. However, portfolio inflow is anything but stable in South Africa. The risk associated with this is that when foreigners‟ expectations of South Africa shift, due to any form of instability or risk within the country or even internationally, it leads to massive withdrawals or outflow of funds, which in turn causes the currency to depreciate. The portfolio balance theory on the other hand states that an increase in portfolio inflow leads to the appreciation of the nominal exchange rate, and that this is perceived to work against economic growth. The main objective of this research is to determine the nature of the relationship between exchange rate volatility and portfolio flows, and the extent to which volatility in the exchange rate affect South Africa‟s portfolio inflow. The research uses Vector Autoregressive (VAR) models and quarterly data, ranging from 1995 to 2012 to investigate this relationship. From the VAR models a Granger causality test, as well impulse response functions is used to shed light on the influence of a one-unit shock in both foreign portfolio inflow and exchange rate volatility on the other variables in the model. Exchange rate volatility is measured using both Autoregressive Conditional Heteroscedasticity (ARCH) family models and the conventional standard deviation, in order to control for possible biasness caused by the choice of instrument of volatility. The results showed the nature of the relationship between exchange rate volatility and foreign portfolio inflow to South Africa‟s capital markets can be described as country-dependent and time-varying. South Africa‟s portfolio inflow exhibits high volatility and low persistence that are characteristics normally associated with “hot money”, which is largely driven by foreign investors‟ appetite for short-term speculative gains. The study identified the consistent presence of bidirectional causality between the exchange rate volatility and foreign portfolio inflow to South Africa, irrespective of the measurement of exchange rate volatility. The results also revealed that net portfolio flows are associated with exchange rate appreciation and that foreign portfolio inflow react much stronger to changes in exchange rate volatility than vice versa. / MCom (Risk Management), North-West University, Potchefstroom Campus, 2015

There are four chapters in my dissertation. Chapter one gives a brief introduction of the three essays. Chapter two studies the choice of exchange rate regimes in East Asia using a business-cycle approach. My results suggest that countries in East Asia are driven mainly by country-specific shocks, making more rigid exchange rate regimes less desirable. Neither a yen bloc nor a dollar bloc has been identified in East Asia. However, Japan seems more influential to countries such as Korea and Taiwan. An optimum currency area does not seem feasible for East Asia, at least in the short run. Chapter three applies the cointegration and causality analyses to the real effective exchange rates to study the degree of monetary integration in East Asia. I find that the ASEAN and the NIE countries, respectively, have achieved some degree of integration, but not East Asia as a whole. The yen is found to move closely with the NIE currencies. However, neither the yen nor the dollar imposes a dominant driving force on the East Asian currencies. My results suggest that East Asia is not an optimum currency area. Chapter four expands the traditional monetary model of exchange rate determination into a structural VAR model incorporating various capital flows and the balance of trade in addition to the macroeconomic fundamentals. The model is then applied to the Australian dollar (AUD), the Canadian dollar (CAD), and the US dollar (USD) exchange rates over 19802004. I find that capital flows, especially portfolio investments, explain a major portion of the exchange rate fluctuations in the relatively small and open economies such as Australia and Canada in the short-to-medium run. The impacts of capital flows are limited to the US dollar exchange rates. Among the macroeconomic fundamentals, the interest rate plays an important role in exchange rate determination for all three currencies. The results imply that different capital flows do influence exchange rates differently and are important determinants of exchange rates.

In this paper we aim to improve existing empirical exchange rate models by accounting for uncertainty with respect to the underlying structural representation. Within a flexible Bayesian non-linear time series framework, our modeling approach assumes that different regimes are characterized by commonly used structural exchange rate models, with their evolution being driven by a Markov process. We assume a time-varying transition probability matrix with transition probabilities depending on a measure of the monetary policy stance of the central bank at the home and foreign country. We apply this model to a set of eight exchange rates against the US dollar. In a forecasting exercise, we show that model evidence varies over time and a model approach that takes this empirical evidence seriously yields improvements in accuracy of density forecasts for most currency pairs considered. / Series: Department of Economics Working Paper Series

Neste estudo, é testada empiricamente a hipótese de eficiência no mercado a termo de câmbio brasileiro, para o período recente de flutuação cambial. A freqüência dos dados é diária, e as taxas a termo são construídas com base no mercado de swaps. É utilizado um método de estimação semi-paramétrico e estatisticamente robusto no contexto de distribuições com caudas pesadas. Este método ainda permite que se trabalhe com séries não-estacionárias no nível (sem diferenciar) e com observações sobrepostas (quando o prazo do contrato a termo excede o intervalo entre as observações da amostra). A hipótese de eficiência é rejeitada quando se usa o método robusto; por outro lado, um método mais sensível à presença de outliers falha em rejeitar a hipótese. Por fim, são discutidas algumas questões relativas à hipótese de eficiência, com especial ênfase para a questão de se a rejeição da hipótese é devida à presença de um prêmio de risco cambial, da ineficiência de mercado ou de ambos os fatores. Os resultados sugerem que o mercado de câmbio a termo no Brasil não é eficiente. / In this dissertation, the forward exchange market efficiency hypothesis is tested for the recent floating regime in Brazil. We use daily frequency data, with implied forward rates based on the swap market. The statistical approach is a semiparametric procedure which is statistically robust to data distributions with heavy tails and allows for non-stationarity of the data and overlapping observations (when the interval between observations is shorter than the futures maturity). The efficiency hypothesis is rejected when the robust procedure is used; still, a distinct procedure more sensible to the presence of outliers fails to reject the hypothesis. At last, we discuss some issues regarding the efficiency hypothesis, emphasizing the question of whether the rejection of the efficiency hypothesis denounces the presence of a risk premium, of market inefficiency or both. The results suggest the Brazilian forward exchange market is not efficient.

Partindo do pressuposto que o agronegócio brasileiro é tipicamente exportador, vários trabalhos, usualmente baseados na análise de equilíbrio parcial, chamaram a atenção para os efeitos adversos das políticas macroeconômicas, que resultaram na sobrevalorização da taxa de câmbio. No entanto, durante o mais recente período de sobrevalorização da taxa de câmbio, ocorrido durante os primeiros anos do Plano Real, a produção agropecuária apresentou ganhos de produtividade, sinalizando a ocorrência de efeitos positivos sobre o setor. Desta forma, o objetivo do trabalho foi analisar o efeito advindo da taxa de câmbio sobre o agronegócio brasileiro, tendo em vista as relações intersetoriais diretas e indiretas características da estrutura produtiva da economia brasileira. Neste sentido, foi adotado um modelo de equilíbrio geral, calibrado para a base de dados de 1995, que foi agregada e desagregada resultando em 32 setores, quais sejam: 9 de produção agropecuária, 9 de produção agroindústrial e 14 outros não-agropecuários e não agroindústriais. Cabe destacar que para aperfeiçoar ainda mais o tratamento de dados visando analisar o agronegócio foi realizado o desmembramento dos setores adubos e defensivos. O efeito da taxa de câmbio sobrevalorizada foi avaliado através da desvalorização da taxa de câmbio nominal, induzida pela alteração exógena do balanço de transações correntes. Os resultados obtidos possibilitaram identificar que o agronegócio brasileiro não foi igualmente afetado pela taxa de câmbio. Percebeu-se que os setores com produção non-tradable, que representavam uma parcela significativa da produção total, foram negativamente afetados pela desvalorização, indicando que a sobrevalorização os beneficiava. As relações intersetoriais evidenciaram o efeito positivo que setores agroindustriais exportadores exerceram sobre os seus fornecedores agropecuários. As agroindústrias de alimentação mais focadas no mercado interno exerceram, por outro lado, menor efeito positivo indireto sobre os fornecedores agropecuários. Além da relação das cadeias do agronegócio, também foi constatado que a desvalorização da taxa de câmbio aumentou os preços dos insumos defensivos e fertilizantes, dada a dependência de matérias-primas importadas desses setores. A elevação de preços de insumos afetou diferentemente os setores agropecuários nontradables e os tradables, uma vez que os primeiros não apresentaram aumento de preços para a produção, resultado este evidenciado pelos termos de troca calculados. Concluiuse a partir de uma série de resultados obtidos pelo modelo, que o agronegócio brasileiro, considerando a estrutura produtiva de 1995, não apresentou reação plenamente positiva em resposta à desvalorização, dada a parcela significativa non-tradable de alguns setores. Com o tratamento obtido através da modelagem multisetorial de equilíbrio geral, possibilitou-se um maior realismo da avaliação dos impactos da taxa de câmbio sobre o agronegócio brasileiro, respeitando-se o grau de relação com o mercado externo de cada setor do agronegócio e dos setores com os quais eles se relacionam. A consideração da significativa parcela non-tradable do agronegócio brasileiro foi um aspecto fundamental de diferenciação em relação à estudos anteriores. / Assuming that the Brazilian Agribusiness is typically exporter, some papers, usually based on partial framework analysis, bring to discussion the adverse effects of the macroeconomic policies that had resulted in overvaluation of the exchange rate. However, despite the overvaluation of the exchange rate occurred during the first years of the Real Plan, the agricultural sector increased the productivity, showing the existence of some positive effects. So, the object of this research was to evaluate the effect of exchange rate over the agribusiness taking into account the direct and indirect intersector relations of production structure of Brazilian economy. To assess this, it was adopted a general equilibrium model, using the 1995 data as reference, which were aggregated and disaggregated, resulting in 32 sectors, as follows: 9 sectors of agricultural production, 9 agricultural related processing sectors and 14 others non agricultural sectors. It’s advisable to mention that, to improve the management of data in order to discuss the agribusiness, it were dismembered fertilizers and pesticides sectors. The effect of exchange rate overvaluation was investigated by the devaluation of nominal exchange rate, induced by the exogenous change of trade balance. The results obtained allowed to identify that the exchange rate had quite different effects over the several sectors of Brazilian agribusiness. The sectors with non-tradable production, that represented a significant parcel of the total production, were negatively affected by the devaluation, indicating that the overvaluation had benefited them. The intersectors linkages showed a positive effect when the processing sectors related to exporting agriculture influenced their agricultural production suppliers. On the other hand, the agricultural food-processing oriented to domestic markets had a less positive effect over their agricultural suppliers. Besides the agribusiness chains, it was also detected the effect of exchange rate devaluation on input prices (pesticides and fertilizers), since these inputs had a significant amount of imported raw material. The increase of input prices affected differently the non-tradable and tradable agricultural sectors, because the first ones had not presented a price increase for production. The comparison for both variations was realized through the calculation of terms of trade. The results allowed to conclude that the Brazilian agribusiness, considering the productive structure of 1995, did not present a fully positive reaction as a response to devaluation, due to the significant non-tradable parcel of some agribusiness sectors. The analysis obtained through the multi- sectorial modeling of general equilibrium gave us a greater realism on impact evaluation of exchange rate on Brazilian agribusiness, considering the level of relationship of the outside market of each agribusiness sector and of their suppliers. It was fundamental, to detach this study from the former ones, to consider the significant non-tradable parcel of Brazilian agribusiness.

We develop a dual open-economy model which incorporates infrastructure as a factor of production to investigate growth-enhancing effects of a competitive exchange rate policy under different levels of investment in infrastructure. It is suggested that a competitive exchange rate policy coordinated with an appropriate infrastructure policy should produce better results than the former policy alone. By increasing productivity in the tradable sector and by reducing inflationary pressures, this policy contributes to the success of an economic growth strategy led by a competitive currency / Desenvolvemos um modelo de economia aberta, com dois setores, que incorpora infraestrutura como um fator de produção, de forma a investigar os efeitos de uma política de taxa de câmbio competitiva sob diferentes níveis de investimento em infraestrutura. Sugere-se que uma política cambial coordenada com uma política de infraestrutura deve produzir melhores resultados. Ao aumentar a produtividade no setor de tradables e ao reduzir as pressões inflacionárias, esta política contribui para o sucesso de uma estratégia de crescimento econômico liderado por uma moeda competitiva