The article tries to complete the “overshooting” model of Dornsbusch, explicitly including a dynamic equation for the money market, because he treats this only in an intuitive way, as if there was an infinite speed of adjustment. After pointing out some errors in the original work, it is showed that the hypotheses made by Dornsbusch are sufficient for the completed model to exhibit the wanted “overshooting”. / El artículo intenta completar el modelo del overshooting de Dornsbusch incluyendo explícitamente una ecuación dinámica para el mercado de dinero, pues este es tratado solo de manera intuitiva por Dornsbusch como si se diera allí una velocidad de ajuste infinita. Luego de hacer notar algunos errores del trabajo original, se demuestra que las hipótesis hechas por Dornsbusch bastan para que el modelo completado exhiba el overshooting deseado.

Thesis (M.M. (Finance & Investment))--University of the Witwatersrand, Faculty of Commerce, Law and Management, Graduate School of Business Administration, 2014. / Dornbusch’s exchange rate overshooting hypothesis has guided monetary policy conduct for many years though empirical evidence on its validity is mixed. This study re-examines the validity of the overshooting hypothesis by using the autoregressive distributed lag (ARDL) procedure. Specifically, the study investigates whether the overshooting hypothesis holds for the United States Dollar/Zambian Kwacha (USD-ZMK) exchange rate. In addition, the study tests if there is a long-run equilibrium relationship between the USD-ZMK exchange rate and the macroeconomic fundamentals (money supply, real Gross Domestic Product (GDP), interest rates and inflation rates). The study uses monthly nominal USD/ZMK exchange rates and monetary fundamentals data from January 2000 to December 2012. The study finds no evidence of exchange rate overshooting. The result also show that there is no long run equilibrium relationship between the exchange rate and the differentials of macroeconomic fundamentals. The implication is that macroeconomic fundamentals are insignificant in determining the exchange rate fluctuations in the long run. This finding is inconsistent with the monetary model of exchange rate determination, which asserts that there is a long-run relationship between the exchange rate and macroeconomic fundamentals.

In this paper, we reconsider the question how monetary policy influences exchange rate dynamics. To this end, a vector autoregressive (VAR) model is combined with a two-country dynamic stochastic general equilibrium (DSGE) model. Instead of focusing exclusively on how monetary policy shocks affect the level of exchange rates, we also analyze how they impact exchange rate volatility. Since exchange rate volatility is not observed, we estimate it alongside the remaining quantities in the model. Our findings can be summarized as follows. Contractionary monetary policy shocks lead to an appreciation of the home currency, with exchange rate responses in the short-run typically undershooting their long-run level of appreciation. They also lead to an increase in exchange rate volatility. Historical and forecast error variance decompositions indicate that monetary policy shocks explain an appreciable amount of exchange rate movements and the corresponding volatility. / Series: Department of Economics Working Paper Series

The Federal Reserve has increased nominal interest rates since early 2016. It is expected that commodity prices will drop in response to this monetary intervention. The overshooting hypothesis explains that commodity prices are more flexible than manufacturing prices and therefore are more volatile. In this situation, it is expected that agricultural commodities decline significantly (i.e., overshoot) and gradually return to their long-run equilibrium. This adjustment behavior has implications for income stability and financial viability of farmers. This research contributes to the overshooting literature by including the energy sector in the overshooting model. The interlinks between energy and other sectors in the economy as well as the vast resource allocation to biofuel production in recent decades demand more attention to the impact of energy on the dynamic adjustment path of relative prices’ reaction to monetary shocks. We assume energy prices have independent adjustment path and include the links between the energy and agricultural sectors through biofuel production in our model. Our theoretical model shows that by including energy prices in the model, agricultural prices and the exchange rate overshoot less than the prediction of prior studies. This happens because we expect that flexible energy prices share the burden of the shock with other flexible prices in the model. We also describe how an increasing share of biofuels in the total fuel consumption will reduce the flexibility of energy prices. In our empirical analysis, we use monthly data from January 1975 to December 2017 for three producer price indexes (i.e., agricultural commodities, energy, and industrial goods), exchange rates, and money supply to test the overshooting hypothesis. We found the series to be nonstationary and cointegrated of the order one, I(1). Thus, we estimated a vector error correction model to identify the short run adjustment parameters while maintaining the long-run relationships between the variables. We identify and control for three possible structural breaks in the data that coincide with two economic crises and the biofuel production era. We also estimated the empirical model using a sub-sample from January 1975 to March 1999 and compared the results with the findings in previous studies. Our empirical results confirm the theoretical expectation that agricultural commodities adjust faster than manufacturing prices. The analysis of the impulse response functions shows that after a money supply shock, agricultural prices were the most responsive, followed by energy prices and exchange rates. In both full sample and the sub-sample, the volatility of prices and exchange rates happen during the first 5 to 10 months. The sluggish adjustment of manufacturing prices was evident from the corresponding impulse response functions. The empirical evidence rejects the long-run money neutrality, consistent with the findings of previous empirical studies. Compared to previous models, our empirical model shows that including energy prices will reduce the extent to which agricultural commodities overshoot. Therefore we expect the disturbances to the farm income variability, in response to monetary policy, to be less than what prior model would have estimated. In this regard, energy prices are a stabilizing factor in this model. We find that increased share of biofuel from total fuel consumption would positively affect the overshooting of agricultural prices. So, higher biofuel mandates could reduce the flexibility of the energy prices and therefore have an adverse effect on the farm price stability.

This thesis consists of four papers, of which paper 1 and 4 are co-written with Mikael Bask. Paper [1] implements chartists trading in a sticky-price monetary model for determining the exchange rate. It is demonstrated that chartists cause the exchange rate to "overshoot the overshooting equilibrium" of a sticky-price monetary model. Chartists base their trading on a short-long moving average. The importance of technical trading depends inversely on the time horizon in currency trade. The exchange rate's perfect foresight path near long-run equilibrium is derived and it is demonstrated that the shorter the time horizon, the greater the exchange rate overshooting. The aim of Paper [2] is to see how the dynamics of the basic target zone model changes when chartists and fundamentalists are introduced. Chartists use technical trading and the relative importance of technical and fundamental analyses depend on the time horizon in currency trade. The model also includes realignment expectations, which increase with the weight of chartists. The introduction of chartists may significantly reduce and reverse, the so-called "honeymoon effect" of a fully credible target zone. Further, chartists may cause the correlation between the exchange rate and the instantaneous interest rate differential to become either positive or negative. Using a chartist-fundamentalist set-up, Paper [3] derives the effects on the current exchange rate of central bank intervention. Fundamentalists have rational expectations and chartists use so called support and resistance levels in their trading. This technique results in chartists having both bandwagon expectations and regressive expectations. Chartists may enhance or suppress the effect of intervention depending on their expectations. The results indicate that a chartist channel exists. The aim of Paper [4] is threefold; (i) to investigate if there is a unique rational expectations equilibrium (REE) in a new Keynesian macroeconomic model augmented with technical trading, (ii), to investigate if the unique REE is adaptively learnable and, (iii), to investigate if this unique and adaptively learnable REE is desirable in an inflation rate targeting regime. The monetary authority is using a Taylor rule when setting the interest rate. A main conclusion is that a robust Taylor rule implies that the monetary authority should increase (decrease) the interest rate when the CPI inflation rate increases (decreases) and when the currency gets stronger (weaker).

The climatology of overshooting convection in tropical cyclones (TCs) is examined using Tropical Rainfall Measuring Mission (TRMM) Precipitation Radar (PR). The percentage of TC convective systems with overshooting convection is highest over the North Indian Ocean basin, while the northwest Pacific basin contains the highest population of both TC convective systems and convection with overshooting tops. Convective systems in the inner core region are more capable of penetrating 14 km and the associated overshooting convection are featured with much stronger overshooting properties compared with those in the inner rainband and outer rainband regions. In the inner core region of TCs, convection associated with precipitating systems of higher intensity and intensification rates has a larger probability of containing overshooting tops. To identify the relative importance of shallow/moderate versus deep/very deep convection in the rapid intensification (RI) of TCs, four types of precipitation-convection are defined based on the 20 dBZ radar echo height (Z20dBZ). Distributions of four types of precipitation-convection, and their contributions to total volumetric rain and total latent heating are quantified. It is shown that RI is closely associated with increased and widespread shallow precipitation around the storm center, while moderately deep and very deep convection (or overshooting convection) does not increase until in the middle of RI. This is further confirmed by the study of rainfall and convection evolution with respect to the timeline of RI events. Statistically, the onset of RI follows a significant increase in the areal coverage of rainfall, shallow precipitation, and cyan of 37 GHz color composites upshear-left, which in turn could be used as potential parameters to forecast RI. Very deep convection is most frequent 12-24 hours before RI onset and concentrates upshear-left, but it quickly decreases in the following 24 hours. The percent occurrence of very deep convection is less than 1% for RI storms. The tilt of vortex is large prior to, and near the RI onset, but rapidly decreases in the middle of RI, suggesting that the vertical alignment is a result instead of a trigger of RI.

Ett flertal teorier försöker förklara de starka fluktuationer växelkurser under rörlig regim uppvisar vid monetära policychocker. En av dessa teorier, Rüdiger Dornbusch:s överreaktionsmodell, menar att fluktuationer kan förklaras av skillnader i den tid varurespektive kapitalmarknaden behöver för att anpassa sig till det förändrade penningutbudet. Denna studie avser utreda modellens empiriska förklaringsförmåga genom att applicera den på fallet Schweiz 2015, där en stor och oväntad centralbanksåtgärd skapade kraftiga reaktioner på valutamarknaden. Genom ett t-test testas den potentiella överreaktionens signifikans. T-statistikan påvisar starkt stöd för att växelkursen rör sig i enlighet med Dornbusch:s modell. Diverse känslighetstester genomförs, om vilket samtliga vidimerar resultaten.

-Exchange Rate Dynamics under Financial Market FrictionsThis paper extends Dornbusch's overshooting model by proposing "generalized interest parity condition", which assumes sluggish adjustment on the asset market. The exchange rate model under the generalized interest parity condition is able to reproduce the delayed overshooting of nominal exchange rates and the hump-shaped response to monetary shocks of both nominal and real exchange rates.-Electoral Cycle of Exchange Rate in KoreaThis paper empirically investigates the real exchange rate behavior around elections in Korea. We find that the real exchange rate depreciates more before the elections but there is no clear pattern found after the elections. Interestingly, this result is the opposite of the electoral cycle found in Latin American countries. To explain this results we should consider the difference between economic backgrounds of Korea and Latin American countries.-Exchange Rate Regime, Capital Market Openness and Monetary Policy; The Trilemma in KoreaThis paper tests the trilemma proposition by performing an empirical study of Korea. Korea has distinct periods of all combinations of exchange rate regime and capital market openness in trilemma: pegged exchange rate regime under capital controls, pegged exchange rate regime under free capital mobility, and floating exchange rate regime under free capital mobility. We check whether monetary autonomy exists in each of the three different combinations. We find that monetary autonomy existed over the periods with capital controls and the periods with floating exchange rate regime. For the periods with the pegged exchange rate regime and free capital mobility, monetary autonomy was limited. In addition, we identify that just before the financial crisis the government pursued autonomic monetary policy under pegged exchange rate regime and free capital mobility, thereby defying the trilemma.

Title: Cloud-top morphology of convective storms as observed by meteorological satellites Author: Michaela Radová Department: Department of Atmospheric Physics Supervisor: RNDr. Martin Setvák, CSc., Czech Hydrometeorological Institute Abstract: This work focuses on study of features occurring at tops of convective storms, namely embedded warm areas, cold rings, cold-U/Vs and overshooting tops (OTs), mainly from the perspective of satellite observations. We have assembled a database of 104 subjectively detected cold rings and cold-U/Vs from the area of Europe. We discuss relationship between satellite- observed brightness temperature and cloud top height determined from radar measurements for storms with distinct cold-rings. Our results support the hypothesis that the warm area is a consequence of presence of central elevated dome reaching warmer lower stratosphere. Moreover, a storm with transformation of cold ring into cold-U is studied and an elevated plume above storm anvil in the warmer lower stratosphere is found to be a likely explanation of the warm area inside the cold-U. Both analyses confirm that thermal inversion above the tropopause is a necessary prerequisite for occurrence of cold rings and cold-U/Vs. We also propose a method for automated objective determination of spatial characteristics of...

一個小型開放體系受外生干擾後，短期中，其名目匯率之變動是否大於一般價格水準 之變動（此稱overshooting現象），一直是近代學者研究的課題。Dornbuch以各市場 回復均衡的調整速度不同；Calve, Rodriguez, Frenkel 等人以資產持有者之不同的 資產選擇行為，來分析此問題，而分別得到了不同的結論。 本文擬建立一個較具一般化的非貿易財模型，並引入通貨替代現象，來說明由於外生 干擾，在短期下，名目匯率之變動產生overshooting或unbershooting 之條件；長期 下實質匯率之決定，並分析匯率變動的動態調整過程。