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.

Doctor of Philosophy / Department of Economics / Steven P. Cassou, Wayne Nafziger / This dissertation comprises three essays in open economy and international macroeconomics. The first essay investigates the propagation mechanism of real exchange rate shocks to key real sectors that constitute U.S. foreign trade. The analysis is carried out by decomposing the U.S. trade balance into agriculture, manufacturing and services and evaluating how these sectors respond through the monetary policy channel to a shock in the real exchange rate. A VAR model is constructed using quarterly data of the U.S. foreign trade from 1976Q2 to 2005Q1. The results show that a shock to the real exchange rate has a greater impact on manufacturing and services net trade relative to agriculture. Moreover, the results also indicate, at the sectoral level, that exports are more sensitive to the real exchange rate shocks than are imports. These results are important to researchers using dynamic stochastic general equilibrium (DSGE) models of small open economies because they show transmission features of real exchange rate and monetary policy disturbances to key sectoral components of exports, imports and the trade balance. The second essay employs a dynamic stochastic general equilibrium framework to an open economy setting in order to investigate the mechanism through which the key sectors of agriculture, manufacturing and services are affected by shocks in the real exchange rates. The essay investigates exchange rate movements as deviations from purchasing power parity, disregarding the changes in the prices of non-tradable goods relative to tradable goods among countries. The results suggest that exchange rate movements are a function of structural parameters that constitute the three sectors of agriculture, manufacturing and services such as labor shares and the elasticity of substitution between domestic and foreign goods. The third essay examines the key forces driving innovation among entrepreneurs of ICT (information and communications technology) firms within Bangalore, India’s leading software city. The essay employs the multinomial logistic technique on qualitative variables related to education, social strata, experience, and diaspora of Indian software entrepreneurs to show empirically their relevance in explaining Schumpeterian innovation in the Indian software industry. This study not only looks at the impact of years of schooling on innovation, but also the types of education received by an entrepreneur, such as technical or commercial type of education, whether the last degree was received from India or from abroad and whether the entrepreneur attended the Indian Institute of Technology. The empirical results indicate that, the level of education, in terms of number of years of schooling and types of education received by an Indian software entrepreneur are statistically significant in explaining innovation in the Indian software industry. The results also show that, more years of experience in the software industry by an entrepreneur, increases the probability that they become innovators and reduces the likelihood of imitation. Moreover, the likelihood of adaptation is invariant to years of experience in the industry. We also investigate whether exposure to foreign technology increases the likelihood of innovation in the industry by examining three types of diaspora networks, that is, living abroad, working abroad and being a CEO abroad at least 6 months before establishing a software company in India. The results suggest that this foreign exposure increases the likelihood of innovation and reduces imitation and adaptation. Among studies of Indian entrepreneurs examining caste, this study is unique in that caste has no statistical significance in explaining entrepreneurship.

The exchange rate forecasting has been an interesting topic for a long time. Beating the random walk model has been the goal of many researchers, who applied various techniques and used various datasets. We tried to beat it using bayesian model averaging technique, which pools a large amount of models and the final forecast is the average of forecasts of these models. We used quarterly data from 1980 to 2013 and attempted to predict the value of exchange rate return of five currency pairs. The novelty was the fact that none of these currency pairs included U.S. Dollar. The forecasting horizon was one, two, four and eight quarters. In addition to random walk, we also compared our results to historical average return model using several benchmarks, such as root mean squared error, mean absolute error or direction of change statistic. We found out that bayesian model averaging can not generally outperform random walk or historical average return, but in specific setting it can produce forecasts with low error and with high percentage of correctly predicted signs of change.

Cette thèse a pour objectif de caractériser le comportement du taux de change réel d'équilibre, face à des chocs d'offre et de demande sur les fondamentaux. Les chapitres I et II mettent en évidence la relation qui lie la productivité au taux de change réel. Les résultats principaux sont les suivants : la croissance de la productivité ne provoque pas systématiquement d'appréciation réelle, contrairement à ce que prévoit l'analyse de BS. Les comportements d'épargne des ménages, la différence du taux de croissance de population, et le ratio entre les travailleurs qualifiés et les travailleurs non-qualifiés dans l'économie affectent la relation entre taux de change réel-productivité. Ces deux premiers chapitres proposent une explication aux déviations observées vis-à-vis de l'analyse Balassa-Samuelson dans la littérature. Le chapitre III décrit abondamment - théoriquement et empiriquement - la relation qui lie le taux de change réel et la démographie. Le cadre théorique nous permet de détecter l'impact du facteur démographique sur le taux de change réel. En même temps, les tests économétriques confirment l'existence d'une relation à long terme entre le facteur démographique et le taux de change réel. Finalement, les trois chapitres I, II, et III mettent en évidence deux déterminants significatifs du taux de change réel : le facteur démographique et la productivité. Le chapitre IV étudie la causalité entre trois variables: le taux de change réel, la productivité, et les facteurs démographiques. Les résultats montrent qu'il existe une forte causalité entre eux, avec un retour à long terme vers le taux de change réel et la productivité. / The aim of this thesis is to characterise the behaviour of the real exchange rate, when it is confronted by shocks to the supply and demand of fundamentals. It disregards monetary phenomena, in order to focus on totally real factors.Chapters I and II of this thesis highlight the relationship between productivity and real exchange rate. The main results are as follows: productivity growth does not systematically produce real appreciation, contrary to the BS prediction. Household savings behaviour, population growth rate difference, and the ratio of qualified to unqualified workers in the economy affect the real exchange rate / productivity relationship. These first two chapters provide a response to the current literature concerning, in certain cases, the invalidity of the Balassa-Samuelson theory.Chapter III describes in considerable detail, both theoretically and empirically, the relationship between the real exchange rate and demographics. The theoretical framework makes it possible to detect the impact of demographics on the real exchange rate. The econometric tests confirm that a long-term relationship exists between demographics and the real exchange rate.Finally, the three chapters I, II and III reveal two significant determinants of the real exchange rate: demographics and productivity.Chapter IV studies the causality existing between three variables: the real exchange rate, productivity, and demographics. The results show that there is indeed a strong degree of causality between these variables, with a long-term return towards real exchange rate and productivity.

In this thesis we examine the effect of foreign exchange interventions in small open economy, focusing on the Czech experience. In the first part we model volatility development before and after the intervention using GARCH model. In the second part we estimate relationship between macroeconomical variables using vector autoregressive model. In this part we estimate impulse response function of exchange rate and inflation. In second part of VAR modeling we provide counterfactual analysis, which compare actual development of variables with alternative scenario in which the interventions would not happen . Our results suggest that the interventions is associated with few months delayed decrease in volatility. Base on scenario analysis the interventions increased inflation by approximately 1.5 % and without the intervention the economy would in deflation around -1 % nowadays. KEYWORDS: Vector autoregression, Volatility modelling, Monetary policy, Intervention Author's e-mail: jantimko16@gmail.com Supervisor's e-mail: tomas.holub@cnb.cz

This thesis analyses possibilities of currency crises prediction in several countries of Central and Eastern Europe region. The thesis is structured into theoretical and practical part. Theoretical part generally describes currency crises, its importance and includes concrete cases of currency crises. There are also stated possibilities of currency crises prediction and usable indicators. Practical part of the thesis identifies currency crises among countries of the referenced region. Identification of currency crises is made on base of simple currency approach and also on base of Market Pressure Indices, more comprehensive method. Then risk of currency crises inception is analyzed according to method of International Monetary Fund and by using Signal approach. Last section of the practical part analyses influence of capital market on domestic currency and potential of capital market for currency crises prediction.

Thesis (M.M. (Finance & Investment))--University of the Witwatersrand, Faculty of Commerce, Law and Management, Graduate School of Business Administration, 2013. / We analyse the role of financial and macro-economic variables in the conduct of monetary policy, particularly the role played by monetary policy in the house price boom of the early 2000s. The analysis is performed in the setup of a New Keynesian open economy. We estimate a five variable Recursive Vector Autoregressive model consisting of the short term interest rate, house prices, inflation, output and the exchange rate. Quarterly data from 1994 to 2011 was inputted in Eviews (6) to run the model. We find a significant causal relationship between the short term interest rate and house prices; the impulse response results show an instant response of house prices to a shock in monetary policy. We conclude that the house price boom of the early 2000s was partially attributed to an overreaction to a shock in monetary policy. We also find evidence of exchange rate pass- through to the consumer price index as in (Mishkin, 2008).We conclude that perhaps monetary policy should take cognisance of asset price fluctuations and exchange rate volatility in determining the policy instrument

A economia brasileira passou por um período de profundas transformações ao longo das duas últimas décadas do século vinte. As mudanças no ambiente econômico induzidas pela abertura comercial e financeira, reforma do Estado e estabilidade monetária, tiveram efeitos positivos sobre a eficiência produtiva. Neste trabalho são apresentadas evidências de que a diferença nos ganhos de produtividade entre a economia brasileira e americana é variável relevante para explicar desvios de longo prazo da taxa real de câmbio daquela dada pela doutrina da Paridade de Poder de Compra (PPC). A metodologia de cointegração de Johansen foi utilizada em busca de evidências da validade do efeito Balassa-Samuelson para a taxa de câmbio bilateral entre o Brasil e os Estados Unidos no período de janeiro de 1978 a agosto de 2002. Para tanto, foi verificada a existência de cointegração entre as variáveis câmbio real e o relativo de preços dos não comercializáveis/comercializáveis para o Brasil e Estados Unidos, de acordo com a modificação feita por Dutton e Strauss (1997) à formulação tradicional da doutrina da Paridade de Poder de Compra (PPC). Esses relativos de preços forma construídos a partir de dados desagregados de índices de preços nos dois países e considerando-se os serviços como pertencentes ao setor dos não comercializáveis e produtos manufaturados ao dos comercializáveis. O procedimento de Johansen foi também aplicado para testar a validade da PPC na sua versão tradicional e dentre o setor dos comercializáveis somente. Os testes apontam para a validade da PPC em todas as três versões consideradas. Entretanto, a versão tradicional não é rejeitada com a presença de uma tendência determinista no vetor de cointegração e essa não rejeição pode ser conseqüência da presença de uma variável integrada de segunda ordem na estimação. Para a versão modificada os testes apontam fortemente para existência de cointegração e para um ajuste melhor do modelo em relação à versão tradicional. A conclusão é de que o efeito Balassa-Samuelson é relevante para explicar movimentos de longo prazo da taxa de cambio bilateral Real/dólar americano no período estudado. / The brazilian economy underwent a period of major transformations during the last two decades of the twentieth century. The changes in economic environment induced by commercial and financial opening, reform of the State and monetary stability, had positive effects on production efficiency. In this work I present evidences that the differential in productivity gain between Brazil and United States is a relevant variable in explaining long run deviations of real exchange rate from the one given by the Purchasing Power Parity (PPP) doctrine. The Johansen’s co integration methodology was used in the search of evidence for the significance of the Balassa-Samuelson effect in the bilateral exchange rate Real/US dollar between january 1978 and august 2002. The existence of co integration between the real exchange rate and non-tradables/tradables goods relative prices for Brazil and U.S. was therefore verified, in accordance to Dutton and Strauss (1997) modifications to standard PPP. These non-tadables/tradables relative prices were built from disaggregated data of price indexes in both countries and considering services as the non-tradable sector and manufacturing goods as the tradable sector. Johansen procedure was also used in testing the validity of PPP in its standard version and amongst tradable goods sector only. The test results point out the validity of PPP in all three cases considered. However, the standard version is not rejected in the presence of a deterministic trend in the co integration vector and this non-rejection might be due to the presence of a second order integrated variable in estimation. For the modified version, the results strongly indicate the existence of co integration and a better fit of the model compared to the standard PPP version. The conclusion is that the Balassa-Samuelson effect is relevant in explaining long run movements of the bilateral exchange rate Real/US dollar in the period studied.

Thesis advisor: Georg Strasser / Exchange Rate Pass Through (ERPT) is the percentage change in a destination country’s import price given a percentage change in the exchange rate. A complete ERPT occurs when import price decreases by the same percentage as the depreciation of the exporting country’s currency and vice versa. In this paper I analyze ERPT in large and small open economies, and hypothesize that as destination economy size gets larger, ERPT will decrease. Reasons I provide to support this hypothesis are: the import share of exporters in destination economies, the demand elasticity that foreign exporters face, and the proportion of consumer demand to world demand that the foreign exporter faces. I find, with statistical significance, that ERPT decreases as the destination economy size increases. The main reason attributed to this inverse relationship is the import share of foreign exporters in destination economies. As import share of the foreign exporter increases, ERPT increases within those destination economies. Since foreign exporters have a higher chance of establishing a large import share in small economies than in large economies, they have a better chance of passing through exchange rate changes into destination country prices. / Thesis (BA) — Boston College, 2011. / Submitted to: Boston College. College of Arts and Sciences. / Discipline: Economics Honors Program. / Discipline: Economics.

Thesis advisor: Matteo Iacoviello / Since its launch, the euro has successfully achieved the status of an international currency, and the prospect of its ability to challenge the dollar is increasingly credible. This paper supplements the ongoing academic discussion by reevaluating the characteristics necessary for such a position in light of the most recent information available on the euro area, and then providing econometric evidence as support. I regress the lags of shares of dollar and euro reserves on the current shares and predict steady state values for each currency. I then regress the same lags, as well as the exchange rate lag, on the change in the euro/dollar exchange rate. I find, first, that the share of euro reserves, while still not as high as the share of dollars, is nonetheless significant: about 26%. Second, the euro/dollar exchange rate is only slightly affected by changes in the share of either currency's reserves. I conclude that confidence in the euro as an alternative international currency is growing, and that the euro has become a real challenge to the dollar. / Thesis (BA) — Boston College, 2007. / Submitted to: Boston College. College of Arts and Sciences. / Discipline: Economics. / Discipline: College Honors Program.