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.

Econometric models in foreign exchange market

According to the significance of the econometric models in foreign exchange market, the purpose of this research is to give a closer examination on some important issues in this area. The research covers exchange rate pass-through into import prices, liquidity risk and expected returns in the currency market, and the common risk factors in currency markets. Firstly, with the significant of the exchange rate pass-through in financial economics, the first empirical chapter studies on the degree of exchange rate pass-through into import in emerging economies and developed countries in panel evidences for comparison covering the time period of 1970-2009. The pooled mean group estimation (PMGE) is used for the estimation to investigate the short run coefficients and error variance. In general, the results present that the import prices are affected positively, though incompletely, by the exchange rate. Secondly, the following study addresses the question whether there is a relationship between cross-sectional differences in foreign exchange returns and the sensitivities of the returns to fluctuations in liquidity, known as liquidity beta, by using a unique dataset of weekly order flow. Finally, the last study is in keeping with the study of Lustig, Roussanov and Verdelhan (2011), which shows that the large co-movement among exchange rates of different currencies can explain a risk-based view of exchange rate determination. The exploration on identifying a slope factor in exchange rate changes is brought up. The study initially constructs monthly portfolios of currencies, which are sorted on the basis of their forward discounts. The lowest interest rate currencies are contained in the first portfolio and the highest interest rate currencies are in the last. The results performs that portfolios with higher forward discounts incline to contain higher real interest rates in overall by considering the first portfolio and the last portfolio though the fluctuation occurs.

Exploring redox-driven self-assembly of mixed metal polyoxometalates

How can we control the experimental conditions towards the isolation of specific structures? Why do particular architectures form? These are some challenging questions that synthetic chemists try to answer, specifically within polyoxometalate (POM) chemistry, where there is still much unknown regarding the synthesis of novel molecular structures in a controlled and predictive manner. This work covers a wide range of POM chemistry, exploring the redox self-assembly of polyoxometalate clusters, using both “one-pot”, flow and hydrothermal conditions. For this purpose, different vanadium, molybdenum and tungsten reagents, heteroatoms, inorganic salts and reducing agents have been used. The template effect of lone-pair containing pyramidal heteroatoms has been investigated. Efforts to synthesize new POM clusters displaying pyramidal heteroanions (XO32-, where X= S, Se, Te, P) are reported. The reaction of molybdenum with vanadium in the presence of XO32- heteroatoms is explored, showing how via the cation and experimental control it is possible to direct the self-assembly process and to isolate isostructural compounds. A series of four isostructural (two new, namely {Mo11V7P} and {Mo11V7Te} and two already known, namely {Mo11V7Se} and {Mo11V7S} disordered egg-shaped Polyoxometalates have been reported. The compounds were characterized by X-ray structural analysis, TGA, UV-Vis, FT-IR, Elemental and Flame Atomic Absorption Spectroscopy (FAAS) analysis and Inductively Coupled Plasma Optical Emission Spectroscopy (ICP-OES). Cyclic Voltammetry measurements have been carried out in all four compounds showing the effect of the ionic density of the heteroatom on the potential. High-Resolution ESI-MS studies have revealed that the structures retain their integrity in solution. Efforts to synthesize new mixed-metal compounds led to isolation, structural, and electronic characterization of the theoretically predicted, but experimentally elusive δ-isomer of the Keggin polyoxometalate cluster anion, {H2W4V9O33(C6H13NO3)}, by the reaction of tungstate(VI) and vanadium(V) with triethanolammonium ions (TEAH), acting as a tripodal ligand grafted to the surface of the cluster. Control experiments (in the absence of the organic compound) have proven that the tripodal ligand plays crucial role on the formation of the isomer. The six vanadium metal centres, which consist the upper part of the cluster, are bonded to the “capping” TEA tripodal ligand. This metal-ligand bonding directs and stabilises the formation of the final product. The δ-Keggin species was characterized by single-crystal X-ray diffraction, FT-IR, UV-vis, NMR and ESI-MS spectrometry. Electronic structure and structure-stability correlations were evaluated by means of DFT calculations. The compounds exhibited photochromic properties by undergoing single-crystal-to-single-crystal (SC-SC) transformations and changing colour under light. Non-conventional synthetic approaches are also used for the synthesis of the POM clusters comparing the classical “one-pot” reaction conditions and exploring the synthetic parameters of the synthesis of POM compounds. Reactions under hydrothermal and flow conditions, where single crystals that depend on the solubility of the minerals under hot water and high pressure can be synthesized, resulted in the isolation of two isostructural compounds, namely, {Mo12V3Te5}. The compound isolated from a continuous processing method, crystallizes in a hexagonal crystal system, forming a 2D porous plane net, while the compound isolated using hard experimental conditions (high temperature and pressure) crystallizes in monoclinic system, resulting in a different packing configuration. Utilizing these alternative synthetic approaches, the most kinetically and thermodynamically compounds would possibly be isolated. These compounds were characterised by single-crystal X-ray diffraction, FT-IR and UV-vis spectroscopy. Finally, the redox-controlled driven oscillatory template exchange between phosphate (P) and vanadate (V) anions enclosed in an {M18O54(XO4)2} cluster is further investigated using UV-vis spectroscopy as a function of reaction time, showed that more than six complete oscillations interconverting the capsule species present in solution from {P2M18} to {V2M18} were possible, provided that a sufficient concentration of the TEA reducing agent was present in solution. In an effort to investigate the periodicity of the exchange of the phosphate and vanadate anions, time dependent Uv-vis measurements were performed for a period at a range of 170-550 hours. Different experimental conditions were also applied in order to investigate the role of the reducing agent, as well as the effect of other experimental variables on the oscillatory system.

Exploring coordination-driven self-assembly with autonomous chemical robots

The work presented herein focused on the automation of coordination-driven self assembly, exploring methods that allow syntheses to be followed more closely while forming new ligands, as part of the fundamental study of the digitization of chemical synthesis and discovery. Whilst the control and understanding of the principle of pre-organization and self-sorting under non-equilibrium conditions remains a key goal, a clear gap has been identified in the absence of approaches that can permit fast screening and real-time observation of the reaction process under different conditions. A firm emphasis was thus placed on the realization of an autonomous chemical robot, which can not only monitor and manipulate coordination chemistry in real-time, but can also allow the exploration of a large chemical parameter space defined by the ligand building blocks and the metal to coordinate. The self-assembly of imine ligands with copper and nickel cations has been studied in a multi-step approach using a self-built flow system capable of automatically controlling the liquid-handling and collecting data in real-time using a benchtop MS and NMR spectrometer. This study led to the identification of a transient Cu(I) species in situ which allows for the formation of dimeric and trimeric carbonato bridged Cu(II) assemblies. Furthermore, new Ni(II) complexes and more remarkably also a new binuclear Cu(I) complex, which usually requires long and laborious inert conditions, could be isolated. The study was then expanded to the autonomous optimization of the ligand synthesis by enabling feedback control on the chemical system via benchtop NMR. The synthesis of new polydentate ligands has emerged as a result of the study aiming to enhance the complexity of the chemical system to accelerate the discovery of new complexes. This type of ligand consists of 1-pyridinyl-4-imino-1,2,3-triazole units, which can coordinate with different metal salts. The studies to test for the CuAAC synthesis via microwave lead to the discovery of four new Cu complexes, one of them being a coordination polymer obtained from a solvent dependent crystallization technique. With the goal of easier integration into an automated system, copper tubing has been exploited as the chemical reactor for the synthesis of this ligand, as it efficiently enhances the rate of the triazole formation and consequently promotes the formation of the full ligand in high yields within two hours. Lastly, the digitization of coordination-driven self-assembly has been realized for the first time using an in-house autonomous chemical robot, herein named the ‘Finder’. The chemical parameter space to explore was defined by the selection of six variables, which consist of the ligand precursors necessary to form complex ligands (aldehydes, alkineamines and azides), of the metal salt solutions and of other reaction parameters – duration, temperature and reagent volumes. The platform was assembled using rounded bottom flasks, flow syringe pumps, copper tubing, as an active reactor, and in-line analytics – a pH meter probe, a UV-vis flow cell and a benchtop MS. The control over the system was then obtained with an algorithm capable of autonomously focusing the experiments on the most reactive region (by avoiding areas of low interest) of the chemical parameter space to explore. This study led to interesting observations, such as metal exchange phenomena, and also to the autonomous discovery of self assembled structures in solution and solid state – such as 1-pyridinyl-4-imino-1,2,3-triazole based Fe complexes and two helicates based on the same ligand coordination motif.