Essays in exchange rates and international finance
Bibliographic record
Abstract
This thesis is based on four essays in exchange rates and international finance.The first essay, examined in the second chapter, considers the long-run performance of the flexible-price monetary model as well as the real interest differential monetary model to explain the dollar-yen exchange rate during a period of high international capital mobility.We apply the Johansen methodology to quarterly data over the period 1980:01-2009:04 and show that the inadequacy of the two monetary models is due to the breakdown of their underlying building-blocks, money demand stability and purchasing power parity.In particular, modifying the monetary models by adjusting them for real stock prices to capture the stability of money demands on one hand and also for real economic variables such as productivity differential, relative government spending, and real oil price to explain the persistence in the real exchange rate on the other provide long-run relationships that appear consistent with the monetary models.Our findings of long-run weak exogeneity tests also emphasise the importance of the extended models employed here.The second essay, examined in the third chapter, is on the nature of the linkages between stock market prices and exchange rates in six advanced economies, namely the US, the UK, Canada, Japan, the euro area, and Switzerland, using data on the banking crisis between 2007 and 2010.Bivariate GARCH-BEKK models are estimated to produce evidence of unidirectional Granger causality from stock returns to exchange rate changes in the US and the UK, in the opposite direction in Canada, and of bidirectional causality in the euro area and Switzerland.Furthermore, causality-invariance from stock returns to exchange rate changes is found in Japan and in the opposite direction in the euro area and Switzerland, whilst there is evidence of bidirectional causality-in-variance in the US and Canada.These findings imply limited opportunities for investors to diversify their assets during this period.The third essay, examined in the fourth chapter, considers the impact of net bond and net equity portfolio flows on exchange rate changes.Two-state Markov-switching models are estimated for the exchange rate of the US vis-a-vis Canada, the euro area, Japan and the UK.Our results suggest that the relationship between net portfolio flows ii and exchange rate changes is nonlinear for all cases considered, except that of the US dollar against the Canadian dollar.The fourth essay, examined in the fifth chapter, considers the impact of exchange rate uncertainty on different components of net portfolio flows, namely net equity and net bond flows, as well as the dynamic linkages between exchange rate volatility and the variability of these two types of flows.Specifically, a bivariate GARCH-BEKK-in mean model is estimated using bilateral data for the US vis--vis Australia, the UK, Japan, Canada, the euro area, and Sweden over the period 1988:01-2011:12.The results indicate that the effect of exchange rate uncertainty on net equity flows is negative in the euro area, the UK and Sweden, and positive in Australia, whilst two countries (Canada and Japan) showed insignificant responses.With regard to the impact of uncertainty on net bond flows, it is shown to be negative in all countries, except Canada (where it is positive).Under the assumption of risk aversion, this suggests that exchange rate uncertainty induces investors, especially those of the counterpart countries to the US, to reduce their financing activities to maximise returns and minimise exposure to uncertainty.This evidence is strong for the UK, the euro area and Sweden as opposed to Canada, Australia and Japan.Furthermore, since exchange rate volatility and the variability of flows are interlinked, exchange rate or credit controls on these flows can be used to pursue economic and financial stability.
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How this classification was reachedexpand
Full frame distilled prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. Learned from the 10,348 direct Codex labels and 10,348 direct Gemma labels. Candidate is the union of thresholded teacher heads; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels or direct frontier model labels.
Codex and Gemma teacher scores by category
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.001 | 0.000 |
| Meta-epidemiology (narrow) | 0.000 | 0.001 |
| Meta-epidemiology (broad) | 0.001 | 0.000 |
| Bibliometrics | 0.003 | 0.001 |
| Science and technology studies | 0.001 | 0.000 |
| Scholarly communication | 0.000 | 0.001 |
| Open science | 0.002 | 0.001 |
| Research integrity | 0.000 | 0.001 |
| Insufficient payload (model declined to judge) | 0.001 | 0.001 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from itClassification
machine, unvalidatedMachine predicted; a candidate call from one teacher head, not a consensus.
How this classification was reached, model by model and score by score, is at the end of the page under "How this classification was reached".