Forecasting exchange rates in the presence of instabilities

Many exchange rate papers articulate the view that instabilities constitute a major impediment to exchange rate predictability. In this thesis we implement Bayesian and other techniques to account for such instabilities, and examine some of the main obstacles to exchange rate models' predictive ability. We first consider in Chapter 2 a time-varying parameter model in which fluctuations in exchange rates are related to short-term nominal interest rates ensuing from monetary policy rules, such as Taylor rules. Unlike the existing exchange rate studies, the parameters of our Taylor rules are allowed to change over time, in light of the widespread evidence of shifts in fundamentals - for example in the aftermath of the Global Financial Crisis. Focusing on quarterly data frequency from the crisis, we detect forecast improvements upon a random walk (RW) benchmark for at least half, and for as many as seven out of 10, of the currencies considered. Results are stronger when we allow the time-varying parameters of the Taylor rules to differ between countries. In Chapter 3 we look closely at the role of time-variation in parameters and other sources of uncertainty in hindering exchange rate models' predictive power. We apply a Bayesian setup that incorporates the notion that the relevant set of exchange rate determinants and their corresponding coefficients, change over time. Using statistical and economic measures of performance, we first find that predictive models which allow for sudden, rather than smooth, changes in the coefficients yield significant forecast improvements and economic gains at horizons beyond 1-month. At shorter horizons, however, our methods fail to forecast better than the RW. And we identify uncertainty in coefficients' estimation and uncertainty about the precise degree of coefficients variability to incorporate in the models, as the main factors obstructing predictive ability. Chapter 4 focus on the problem of the time-varying predictive ability of economic fundamentals for exchange rates. It uses bootstrap-based methods to uncover the time-specific conditioning information for predicting fluctuations in exchange rates. Employing several metrics for statistical and economic evaluation of forecasting performance, we find that our approach based on pre-selecting and validating fundamentals across bootstrap replications generates more accurate forecasts than the RW. The approach, known as bumping, robustly reveals parsimonious models with out-of-sample predictive power at 1-month horizon; and outperforms alternative methods, including Bayesian, bagging, and standard forecast combinations. Chapter 5 exploits the predictive content of daily commodity prices for monthly commodity-currency exchange rates. It builds on the idea that the effect of daily commodity price fluctuations on commodity currencies is short-lived, and therefore harder to pin down at low frequencies. Using MIxed DAta Sampling (MIDAS) models, and Bayesian estimation methods to account for time-variation in predictive ability, the chapter demonstrates the usefulness of suitably exploiting such short-lived effects in improving exchange rate forecasts. It further shows that the usual low-frequency predictors, such as money supplies and interest rates differentials, typically receive little support from the data at monthly frequency, whereas MIDAS models featuring daily commodity prices are highly likely. The chapter also introduces the random walk Metropolis-Hastings technique as a new tool to estimate MIDAS regressions.

Leptospirosis in northern Tanzania: exploring the role of rodents and ruminant livestock in a neglected public health problem

Leptospirosis is an important but neglected zoonotic disease that is often overlooked in Africa. Although comprehensive data on the incidence of human disease are lacking, robust evidence of infection has been demonstrated in people and animals from all regions of the continent. However, to date, there are few examples of direct epidemiological linkages between human disease and animal infection. In East Africa, awareness of the importance of human leptospirosis as a cause of non-malarial febrile illness is growing. In northern Tanzania, acute leptospirosis has been diagnosed in 9% of patients with severe febrile illness compared to only 2% with malaria. However, little is known about the relative importance of different potential animal hosts as sources of human infection in this area. This project was established to investigate the roles of rodents and ruminant livestock, important hosts of Leptospira in other settings, in the epidemiology of leptospirosis in northern Tanzania. A cross-sectional survey of rodents living in and around human settlements was performed alongside an abattoir survey of ruminant livestock. Unusual patterns of animal infection were detected by real-time PCR detection. Renal Leptospira infection was absent from rodents but was detected in cattle from several geographic areas. Infection was demonstrated for the first time in small ruminants sub-Saharan Africa. Two major Leptospira species and a novel Leptospira genotype were detected in livestock. L. borgpetersenii was seen only in cattle but L. kirschneri infection was detected in multiple livestock species (cattle, sheep and goats), suggesting that at least two distinct patterns of Leptospira infection occur in livestock in northern Tanzania. Analysis of samples from acute leptospirosis in febrile human patients could not detect Leptospira DNA by real-time PCR but identified social and behavioural factors that may limit the utility of acute-phase diagnostic tests in this community. Analysis of serological data revealed considerable overlap between serogroups detected in cattle and human leptospirosis cases. Human disease was most commonly attributed to the serogroups Mini and Australis, which were also predominant reactive serogroups in cattle. Collectively, the results of this study led to the hypothesis that livestock are an important reservoir of Leptospira infection for people in northern Tanzania. These results also challenge our understanding of the relationship between Leptospira and common invasive rodent species, which do not appear to maintain infection in this setting. Livestock Leptospira infection has substantial potential to affect the well-being of people in East Africa, through direct transmission of infection or through indirect effects on food production and economic security. Further research is needed to quantify the impact of livestock leptospirosis in Africa and to develop effective interventions for the control of human and animal disease.

Reactive Attachment Disorder in infants in foster care and associated mental health and cognitive functioning

Background: Reactive attachment disorder (RAD) has been described as one of the least researched and most poorly understood psychiatric disorders (Chaffin et al., 2006). Despite this, given what is known about maltreatment and attachment, it is likely that RAD has profound consequences for child development. Very little is known about the prevalence and stability of RAD symptoms over time. Until recently it has been difficult to investigate the presence of RAD due to limited measures for informing a diagnosis. However this study utilised a new observational tool Method: A cross sectional study design with a one-year follow-up explored RAD symptoms in maltreated infants in Scotland (n=55, age range= 16-62 months) and associated mental health and cognitive functioning. The study utilised the Rating of Inhibited Attachment Behavior Scale (Corval, et al., unpublished 2014) that has recently been developed by experts in the field along side The Disturbances of Attachment Interview (Smyke & Zeanah, 1999). Children were recruited as part of the BeST trial, whereby all infants who came in to the care of the local authority in Glasgow due to child protection concerns were invited to participate. The study sample was representative of the larger pool of data in terms of age, gender, mental health and cognitive functioning. Results: The sample was found to be representative of the population of maltreated children from which it was derived. Prevalence of RAD was found to be 7.3% (n=3, 95% CI [0.43 – 14.17]) at T1, when children are first placed in to foster care. At T2, following one year in improved care conditions, 4.3% (n=2, 95% CI [below 0 – 10.16]) met a borderline RAD diagnosis. Levels of observed RAD symptoms decreased significantly at T2 in comparison to T1 but carer reported symptoms of RAD did not. Children whose RAD symptoms did not improve were found to be significantly older and showed less prosocial behaviour. RAD was associated with some mental health and cognitive difficulties. Lower Verbal IQ and unexpectedly, prosocial behaviour were found to predict RAD symptoms. Conclusions: The preliminary findings have added to the developing understanding of RAD symptoms and associated difficulties however further exploration of RAD in larger samples would be invaluable.