This thesis consists of three papers on open economy models in the portfolio balance tradition. The first paper presents a dynamic stock-flow consistent model for three economies with both fixed and floating exchange rates. The model is applied to simulate the impact of internal and external shocks, and short-run and long-run effects of changes in the U.S. fiscal position on the economies of the three countries---the U.S., China and Euroland. The simulation results show that the compensation principle still holds in an open overdraft economy.
The second paper investigates the effect of the diversification of China's foreign reserves using the three-country model. The simulation results show that with the diversification of China's foreign reserves, the euro appreciates against the dollar and the RMB. China and the U.S. can benefit from the diversification, while the Euroland economy slows down. What is interesting is that the model generates some kind of path dependence. How the central bank of China will achieve its target diversification rate has an impact on the steady state values of the model.
The third paper examines the portfolio balance model for the determination of the nominal exchange rate of the Canadian dollar against the US dollar using the VAR model. One cointegration equation is found. Through the impulse response and the variance decomposition analyses, we find that the Canadian demand for the US bills and bonds play an important role in the dynamic changes of the exchange rate. The empirical test results indicate that it is difficult for the reduced form portfolio-balance models to consistently beat the random walk model.
| Identifer | oai:union.ndltd.org:uottawa.ca/oai:ruor.uottawa.ca:10393/29624 |
| Date | January 2008 |
| Creators | Zhao, Jun |
| Publisher | University of Ottawa (Canada) |
| Source Sets | Université d’Ottawa |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Format | 167 p. |
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