This study empirically investigates the relationship between fiscal deficit, inflation, M3 money supply and the exchange rate in South Africa. The study makes use of quarterly macroeconomic time-series data sets comprising 84 observations, covering the period from 1994Q1 to 2015Q4. The unit root tests conducted employed the Augmented Dickey Fuller (ADF) and Phillips-Perron (PP) tests. The results reveal that the variables become stationary at first difference. The Johansen co-integration technique suggests that there is at least one co-integrating equation among the variables. The results of the Engle-Granger approach, which is residual based, show that the residuals are stationary, thus validating the existence of a long-run relationship between the model variables. The study carried out a Granger causality test. The results indicate that there is a strong Granger causal relationship between the variables (IF) and (FD). Another strong causal relationship emerges between inflation and money supply. The ECM model was employed to identify the speed of adjustment as a response to the departures from the long-run equilibrium path. The estimated coefficient of the ECM error term has the required sign and is statistically significant at the five per cent level of significance. The error term indicates a quick convergence to equilibrium. The study concludes that the dependent variable (FD) is jointly caused by all the independent variables in the long-run. The results of the variance decomposition of the variable (FD) to innovations resulting from IF, MS and RER indicate that own shocks remain the dominant source of total fluctuations in the forecast error of the variables. The findings of the study are efficient and reliable as the estimated model passed all the major diagnostic tests. By implication the findings suggest that the estimated model show high goodness of fit and is thus reliable for policy making. The study recommends a fiscal adjustment that will enhance economic growth. Additionally, a fiscal policy that will aim at identifying and mitigating other possible leakages that narrow the tax base should be considered.

Chung, Tsz Kin = 均值回復正態過程的雙撞擊時間分佈以及其在金融上的應用 / 鍾子健. / Thesis submitted in: December 2008. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2009. / Includes bibliographical references (leaves 101-105). / Abstracts in English and Chinese. / Chung, Tsz Kin = Jun zhi hui fu zheng tai guo cheng de shuang zhuang ji shi jian fen bu yi ji qi zai jin rong shang de ying yong / Zhong Zijian. / Chapter 1 --- Introduction --- p.1 / Chapter 1.1 --- Overview --- p.1 / Chapter 1.2 --- Mean-reverting lognormal (MRL) process --- p.3 / Chapter 1.3 --- MRL-process and AR(l)-process --- p.5 / Chapter 2 --- Double Hitting Time Distribution of a Mean-Reverting Log-normal Process --- p.8 / Chapter 2.1 --- Introduction --- p.8 / Chapter 2.2 --- Probability density function --- p.9 / Chapter 2.3 --- Interpolation scheme - estimates and bounds --- p.12 / Chapter 2.4 --- Multi-stage approximation scheme --- p.17 / Chapter 2.5 --- Hitting time distribution and density --- p.19 / Chapter 2.6 --- Numerical analysis --- p.20 / Chapter 2.7 --- Appendix --- p.24 / Chapter 2.7.1 --- Solving the Fokker-Planck equation --- p.24 / Chapter 2.7.2 --- Probability density function associated with two piecewise-continuous boundaries --- p.27 / Chapter 3 --- Pricing Exotic Options with Mean Reversion --- p.29 / Chapter 3.1 --- Introduction --- p.29 / Chapter 3.2 --- Barrier options --- p.30 / Chapter 3.2.1 --- Double barrier options --- p.32 / Chapter 3.2.2 --- Rebates --- p.33 / Chapter 3.2.3 --- Numerical examples --- p.34 / Chapter 3.3 --- Lookback options --- p.36 / Chapter 3.3.1 --- Expected minimum and maximum --- p.37 / Chapter 3.3.2 --- Standard lookback options --- p.41 / Chapter 3.3.3 --- Fixed strike lookback options --- p.42 / Chapter 3.3.4 --- Lookback spread option --- p.43 / Chapter 3.3.5 --- Numerical examples --- p.43 / Chapter 3.4 --- Sensitivity analysis --- p.46 / Chapter 3.4.1 --- Analysis ´ؤ double knock-out call option --- p.47 / Chapter 3.4.2 --- Analysis ´ؤ floating strike lookback put option --- p.52 / Chapter 3.4.3 --- Analysis ´ؤ lookback spread option --- p.56 / Chapter 3.4.4 --- Summary --- p.60 / Chapter 3.5 --- Appendix --- p.61 / Chapter 3.5.1 --- Closed-form price formula of the double knock-out call option --- p.61 / Chapter 3.5.2 --- Derivations of lookback options --- p.63 / Chapter 4 --- Using First-Passage-Time Density to Assess Realignment Risk of a Target Zone --- p.66 / Chapter 4.1 --- Realignment risk of a target zone --- p.66 / Chapter 4.1.1 --- Currency option market and target zone --- p.66 / Chapter 4.1.2 --- First-Passage-Time approach --- p.67 / Chapter 4.1.3 --- Option price and implied volatility --- p.69 / Chapter 4.1.4 --- FPT density and realignment risk --- p.73 / Chapter 4.2 --- The ERM crisis of 1992 --- p.74 / Chapter 4.2.1 --- British pound (GBP) target zone --- p.74 / Chapter 4.2.2 --- Italian lira (ITL) target zone --- p.81 / Chapter 4.2.3 --- Summary --- p.85 / Chapter 5 --- Market Expectation of Appreciation of the Renminbi --- p.87 / Chapter 5.1 --- The Chinese Renminbi exchange rate system --- p.87 / Chapter 5.2 --- First-Passage-Time approach --- p.90 / Chapter 5.3 --- Estimations of expected maximum appreciation of Renminbi --- p.92 / Chapter 5.4 --- Appendix --- p.99 / Chapter 5.4.1 --- Derivations of the expected minimum and maximum --- p.99 / Bibliography --- p.101

This thesis examines exchange rate exposure of 30 U.S. industries between 1974 and 2008 using traditional and orthogonalized linear models. Similar to the literature, when using traditional linear model we find that exposure is very time dependent and often insignificant. However, we discover that orthogonalization helps uncover more evidence of industry exposure. Within the orthogonalized linear model framework, we find that exposure is statistically and economically important, and the effect of orthogonalization is more pronounced for exposure to currency indices. We also test symmetry in exchange rate exposure by subdividing the sample period into the periods of appreciations and depreciations. Interestingly, we find little evidence that exchange rate is asymmetric even if we use orthogonalized linear model. Lastly, we discover that exchange rate exposure cannot be explained by our international trade data.

This thesis conducts a comprehensive examination on the random walk behavior of 29 foreign exchange rates over the period of floating exchange regime, using variance-ratio tests. The cross-country and time-series test show that random walk model cannot be rejected on majority, and the random walk behavior is quite volatile across the whole floating exchange regime period. It then goes further to explore possible factors that can explain the probability of rejection/ non-rejections on random walk model using linear as well as nonlinear probability models, and find that the factors such as capital openness and investment-to-trade ratio significantly increases the chance of its exchange rate exhibiting random walk behavior.

My dissertation consists of three essays in international capital markets. In Chapter I, we examine the herd trading behavior of institutional investors trading around the world. Using a new transaction-level trades database of 531 U.S. institutional investors trading across 37 countries for the period 2002-2009, we find robust evidence of intra- and inter-period herdings at the monthly frequency. We find no evidence that trades by institutions in our sample destabilize local stock markets. Further analysis shows that: (i) in the buy side, both intra- and inter-period herdings are more pronounced in countries with weaker information environments; and (ii) in the sell side, intra-period herding is more pronounced in countries with stronger information environments, whereas inter-period herding is not significantly related to information environments. In Chapter II, we document that the degree of co-movement between bilateral USD ex- change rates has increased substantially since the introduction of the euro in 1999 and investigate what drives the increased co-movement. For each of our 33 sampled bilateral USD exchange rates, we measure the degree of co-movement using the R-square from re- gressing weekly exchange rate changes on the weekly world exchange rate factor. Our results show that, for the majority of sample exchange rates, the R-square has increased substan- tially over the period 1999-2010. Specifically, the average R-square was 0.15 in 1999, but it increased to 0.47 by more than 200% in 2010. Further analysis reveals that the rising influence of the euro relative to USD over a third currency can explain most of the increase in the measured co-movement over time. In Chapter III, we examine the level and trend of U.S. domestic market integration. For each of our sample states, we construct the state (market) portfolio comprising public firms headquartered within the state and compute R-square, our measure of integration, from regressing state portfolio returns on national stock market factors. Using weekly returns, we estimate the regression for each year of our sample period 1963-2008. The key findings are: (i) For the majority of sample states, the R-square exhibits a statistically significant upward trend, implying that U.S. domestic stock markets were not fully integrated and have been integrating during the sample period; (ii) consistent with the previous result, the explanatory power of the state factor over individual stock returns has been decreasing for the majority of states; and (iii) the increasing integration of U.S. domestic stock markets is associated with the decreasing home state bias, suggesting that investors' pursuit of nation- wide investment opportunities may be a significant driver of domestic financial integration.

Thesis (doctoral)--Göteborgs universitet, 2002. / Extra t.p. with thesis statement inserted. Includes bibliographical references.

Thesis (Ph. D.)--University of Texas at Austin, 2002. / Vita. Includes bibliographical references. Available also from UMI Company.

Bachelor's thesis. / Format: PDF. Bibl.

Not available / text

There are two key observations in international macroeconomics which pertain to output and real exchange rate dynamics. First, fluctuations in national output around its long-run growth path are very persistent. Second, fluctuations in real exchange rates are very persistent. The sticky price framework offers an explanation for both phenomena. The first and second essay of this thesis take an empirical approach to test the predictions of this framework. In the first essay I test the prediction of the sticky price model for output dynamics using annual IFS data on 51 countries over the period 1950 -1996. The model predicts that price stickiness should be less important in high inflation countries and therefore output fluctuations less persistent. I find that, this inverse relationship is statistically insignificant in the international data. A similar result holds for OECD countries. In the empirical implementation I explicitly control for the within-country time variation in inflation by first characterizing the inflationary environment using the long-run movements in inflation (trend inflation), and secondly, by excluding episodes of hyperinflation. The analysis shows that when the within-country time variation in inflation is ignored, there is support for the prediction. For instance, the inverse relationship between persistence in deviations of output from its long-run growth path and average inflation is statistically significant in the full sample. However, the exclusion of a few episodes of hyperinflation renders this relationship statistically insignificant. In the second essay I investigate the prediction of the sticky price model for real exchange rate dynamics using annual IFS data on 49 countries over the period 1972-1996. The model predicts that deviations of real exchange rates from purchasing power parity should be less persistent, in high inflation countries. The empirical analysis reveals that the support for such an inverse relationship is extremely fragile. In particular, eliminating episodes of hyperinflation renders this relationship statistically insignificant. The lack of evidence in favour of the two predictions of the sticky price model is problematic since this model is extensively used as a microfoundation for understanding output and real exchange rate fluctuations. In the third essay I take a structural approach to qualitatively explore the role of slow diffusion of new products in propagating the effect of technology shocks on output. I present a multi-sector dynamic general equilibrium model in which the creation of new products requires real resources. These products are beneficial for the economy but only upon complete diffusion. However, this diffusion is not instantaneous. I find that relative to a model in which there is instantaneous diffusion of new products, the qualitative output dynamics are similar to what is observed in the U.S. data. This warrants further quantitative investigation.