Essays on exchange rate economics

Exchange rate economics has achieved substantial development in the past few decades. Despite extensive research, a large number of unresolved problems remain in the exchange rate debate. This dissertation studied three puzzling issues aiming to improve our understanding of exchange rate behavior. Chapter Two used advanced econometric techniques to model and forecast exchange rate dynamics. Chapter Three and Chapter Four studied issues related to exchange rates using the theory of New Open Economy Macroeconomics. ^ Chapter Two empirically examined the short-run forecastability of nominal exchange rates. It analyzed important empirical regularities in daily exchange rates. Through a series of hypothesis tests, a best-fitting fractionally integrated GARCH model with skewed student-t error distribution was identified. The forecasting performance of the model was compared with that of a random walk model. Results supported the contention that nominal exchange rates seem to be unpredictable over the short run in the sense that the best-fitting model cannot beat the random walk model in forecasting exchange rate movements. ^ Chapter Three assessed the ability of dynamic general-equilibrium sticky-price monetary models to generate volatile foreign exchange risk premia. It developed a tractable two-country model where agents face a cash-in-advance constraint and set prices to the local market; the exogenous money supply process exhibits time-varying volatility. The model yielded approximate closed form solutions for risk premia and real exchange rates. Numerical results provided quantitative evidence that volatile risk premia can endogenously arise in a new open economy macroeconomic model. Thus, the model had potential to rationalize the Uncovered Interest Parity Puzzle. ^ Chapter Four sought to resolve the consumption-real exchange rate anomaly, which refers to the inability of most international macro models to generate negative cross-correlations between real exchange rates and relative consumption across two countries as observed in the data. While maintaining the assumption of complete asset markets, this chapter introduced endogenously segmented asset markets into a dynamic sticky-price monetary model. Simulation results showed that such a model could replicate the stylized fact that real exchange rates tend to move in an opposite direction with respect to relative consumption. ^

Essays on Exchange Rate Economics

Exchange rate economics has achieved substantial development in the past few decades. Despite extensive research, a large number of unresolved problems remain in the exchange rate debate. This dissertation studied three puzzling issues aiming to improve our understanding of exchange rate behavior. Chapter Two used advanced econometric techniques to model and forecast exchange rate dynamics. Chapter Three and Chapter Four studied issues related to exchange rates using the theory of New Open Economy Macroeconomics. Chapter Two empirically examined the short-run forecastability of nominal exchange rates. It analyzed important empirical regularities in daily exchange rates. Through a series of hypothesis tests, a best-fitting fractionally integrated GARCH model with skewed student-t error distribution was identified. The forecasting performance of the model was compared with that of a random walk model. Results supported the contention that nominal exchange rates seem to be unpredictable over the short run in the sense that the best-fitting model cannot beat the random walk model in forecasting exchange rate movements. Chapter Three assessed the ability of dynamic general-equilibrium sticky-price monetary models to generate volatile foreign exchange risk premia. It developed a tractable two-country model where agents face a cash-in-advance constraint and set prices to the local market; the exogenous money supply process exhibits time-varying volatility. The model yielded approximate closed form solutions for risk premia and real exchange rates. Numerical results provided quantitative evidence that volatile risk premia can endogenously arise in a new open economy macroeconomic model. Thus, the model had potential to rationalize the Uncovered Interest Parity Puzzle. Chapter Four sought to resolve the consumption-real exchange rate anomaly, which refers to the inability of most international macro models to generate negative cross-correlations between real exchange rates and relative consumption across two countries as observed in the data. While maintaining the assumption of complete asset markets, this chapter introduced endogenously segmented asset markets into a dynamic sticky-price monetary model. Simulation results showed that such a model could replicate the stylized fact that real exchange rates tend to move in an opposite direction with respect to relative consumption.

Developing an enhanced model for combined heat and air infiltration energy simulation

The need for efficient, sustainable, and planned utilization of resources is ever more critical. In the U.S. alone, buildings consume 34.8 Quadrillion (1015) BTU of energy annually at a cost of $1.4 Trillion. Of this energy 58% is utilized for heating and air conditioning. ^ Several building energy analysis tools have been developed to assess energy demands and lifecycle energy costs in buildings. Such analyses are also essential for an efficient HVAC design that overcomes the pitfalls of an under/over-designed system. DOE-2 is among the most widely known full building energy analysis models. It also constitutes the simulation engine of other prominent software such as eQUEST, EnergyPro, PowerDOE. Therefore, it is essential that DOE-2 energy simulations be characterized by high accuracy. ^ Infiltration is an uncontrolled process through which outside air leaks into a building. Studies have estimated infiltration to account for up to 50% of a building's energy demand. This, considered alongside the annual cost of buildings energy consumption, reveals the costs of air infiltration. It also stresses the need that prominent building energy simulation engines accurately account for its impact. ^ In this research the relative accuracy of current air infiltration calculation methods is evaluated against an intricate Multiphysics Hygrothermal CFD building envelope analysis. The full-scale CFD analysis is based on a meticulous representation of cracking in building envelopes and on real-life conditions. The research found that even the most advanced current infiltration methods, including in DOE-2, are at up to 96.13% relative error versus CFD analysis. ^ An Enhanced Model for Combined Heat and Air Infiltration Simulation was developed. The model resulted in 91.6% improvement in relative accuracy over current models. It reduces error versus CFD analysis to less than 4.5% while requiring less than 1% of the time required for such a complex hygrothermal analysis. The algorithm used in our model was demonstrated to be easy to integrate into DOE-2 and other engines as a standalone method for evaluating infiltration heat loads. This will vastly increase the accuracy of such simulation engines while maintaining their speed and ease of use characteristics that make them very widely used in building design.^

Developing an Enhanced Model for Combined Heat and Air Infiltration Energy Simulation

The need for efficient, sustainable, and planned utilization of resources is ever more critical. In the U.S. alone, buildings consume 34.8 Quadrillion (1015) BTU of energy annually at a cost of $1.4 Trillion. Of this energy 58% is utilized for heating and air conditioning. Several building energy analysis tools have been developed to assess energy demands and lifecycle energy costs in buildings. Such analyses are also essential for an efficient HVAC design that overcomes the pitfalls of an under/over-designed system. DOE-2 is among the most widely known full building energy analysis models. It also constitutes the simulation engine of other prominent software such as eQUEST, EnergyPro, PowerDOE. Therefore, it is essential that DOE-2 energy simulations be characterized by high accuracy. Infiltration is an uncontrolled process through which outside air leaks into a building. Studies have estimated infiltration to account for up to 50% of a building’s energy demand. This, considered alongside the annual cost of buildings energy consumption, reveals the costs of air infiltration. It also stresses the need that prominent building energy simulation engines accurately account for its impact. In this research the relative accuracy of current air infiltration calculation methods is evaluated against an intricate Multiphysics Hygrothermal CFD building envelope analysis. The full-scale CFD analysis is based on a meticulous representation of cracking in building envelopes and on real-life conditions. The research found that even the most advanced current infiltration methods, including in DOE-2, are at up to 96.13% relative error versus CFD analysis. An Enhanced Model for Combined Heat and Air Infiltration Simulation was developed. The model resulted in 91.6% improvement in relative accuracy over current models. It reduces error versus CFD analysis to less than 4.5% while requiring less than 1% of the time required for such a complex hygrothermal analysis. The algorithm used in our model was demonstrated to be easy to integrate into DOE-2 and other engines as a standalone method for evaluating infiltration heat loads. This will vastly increase the accuracy of such simulation engines while maintaining their speed and ease of use characteristics that make them very widely used in building design.