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.

The commercial bark harvest of the African cherry (Prunus africana) on Mount Oku, Cameroon: Effects on traditional uses and population dynamics

Bark extracts of the African cherry (Prunus africana) are used to treat benign prostatic hyperplasia. This study examined the effects of commercial bark harvest on population dynamics in the Kilum-Ijim Forest Preserve on Mount Oku, Cameroon and on traditional uses. P. africana is valued for its timber and as fuel although its greatest value is as a traditional medicine for human and animal ailments. Harvest has depleted the resource and has eroded traditional forest protection practices. I constructed matrix models to examine the effects of bark harvest on population structure and on population dynamics in harvested and unharvested populations. Harvesting simulations examined the effect on the population growth rate (λ) with differing levels of mortality of harvest-sized and large trees and differing harvest frequencies. Size class frequencies for the entire forest decreased in a reverse j-shaped curve, indicating adequate recruitment in the absence of harvest. Individual plots showed differences from the overall forest data, suggesting effects of natural and man-made perturbations, particularly due to bark harvest. One plot (harvested in the 1980s) showed a temporal difference in λ and fluctuated around one, due to alternating high and low fruiting years; other unharvested plots showed smaller temporal differences. Harvested plots (harvested illegally in 1997) had values of λ less than one and showed small temporal differences. The control plot also showed λ less than one, due to poor recruitment in the closed canopy forest. The value of λ for the combined data was 0.9931 suggesting a slightly declining population. The elasticity matrix for the combined data indicated the population growth rate was most sensitive to the survival of the large reproductive trees (42.5% of the elasticity). In perturbation analyses, reducing the survival of the large trees caused the largest reductions in λ. Simulations involving harvesting frequency indicated λ returns to pre-harvest conditions if trees are re-harvested after 10–15 years, but only if the large trees are left unharvested. Management scenarios suggest harvest can be sustainable if seedlings and small saplings are planted in the forest and actively managed, although large-scale plantations may be the only feasible option to meet market demand. ^

The successional dynamics of lightning-initiated canopy gaps in the mangrove forests of Shark River, Everglades National Park, USA

Gap succession is a significant determinant of structure and development in most forest communities. Lightning strikes are an important source of canopy gaps in the mangrove forest of Everglades National Park. I investigated the successional dynamics of lightning-initiated canopy gaps to determine their influence on forest stand structure of the mixed mangrove forests ( Rhizophora mangle, Laguncularia racemosa, and Avicennia germinans ) of the Shark River. I measured gap size, gap shape, light environment, soil characteristics, woody debris, and fiddler crab abundance. I additionally measured the vegetative composition in a chronosequences of gap successional stages (new, recruiting, and growing gaps). I recorded survivorship, recruitment, growth and soil elevation dynamics within a subset of new and growing gaps. I determined the relationship between intact forest soil elevation and site hydrology in order to interpret the effects of lightning disturbance on soil elevation dynamics. ^ Gap size averaged 289 ± 20 m2 (± 1SE) and light transmittance decreased exponentially as gaps filled with saplings. Fine woody debris was highest in recruiting gaps. Soil strength was lower in the gaps than in the forest. The abundance of large and medium fiddler crab burrows increased linearly with total seedling abundance. Soil surface elevation declined in newly formed lightning gaps; this loss was due to a combination of superficial erosion (8.5 mm) and subsidence (60.9 mm). A distinct two-cohort recruitment pattern was evident in the seedling/sapling surveys, suggesting a partitioning of the succession between individuals present before and after lightning strike. In new gaps, the seedling recruitment rate was twice as high as in forest and the sapling population increased. At the growing gap stage, R. mangle seedling mortality was 10 times greater and sapling mortality was 13 times greater than recruitment. Growing gaps had reduced seedling stem elongation, sapling growth and adult growth. However, a few individuals (R. mangle saplings) were able to recruit into the adult life stage. In conclusion, the high density of R. mangle seedlings and saplings imply that lightning strike disturbances in these mangrove forests favor their recruitment over that of A. germinans and L. racemosa. ^

Estimation of ravine sediment production and sediment dynamics in the lower Le Sueur River watershed, Minnesota

This study focuses on quantifying explicitly the sediment budget of deeply incised ravines in the lower Le Sueur River watershed, in southern Minnesota. High-rate-gully-erosion equations along with the Universal Soil Loss Equation (USLE) were implemented in a numerical modeling approach that is based on a time-integration of the sediment balance equations. The model estimates the rates of ravine width and depth change and the amount of sediment periodically flushing from the ravines. Components of the sediment budget of the ravines were simulated with the model and results suggest that the ravine walls are the major sediment source in the ravines. A sensitivity analysis revealed that the erodibility coefficients of the gully bed and wall, the local slope angle and the Manning’s coefficient are the key parameters controlling the rate of sediment production. Recommendations to guide further monitoring efforts in the watershed and increased detail modeling approaches are highlighted as a result of this modeling effort.

The potential role of plant oxygen and sulphide dynamics in die-off events of the tropical seagrass, Thalassia testudinum

1 Oxygen and sulphide dynamics were examined, using microelectrode techniques, in meristems and rhizomes of the seagrass Thalassia testudinum at three different sites in Florida Bay, and in the laboratory, to evaluate the potential role of internal oxygen variability and sulphide invasion in episodes of sudden die-off. The sites differed with respect to shoot density and sediment composition, with an active die-off occurring at only one of the sites. 2 Meristematic oxygen content followed similar diel patterns at all sites with high oxygen content during the day and hyposaturation relative to the water column during the night. Minimum meristematic oxygen content was recorded around sunrise and varied among sites, with values close to zero at the die-off site. 3 Gaseous sulphide was detected within the sediment at all sites but at different concentrations among sites and within the die-off site. Spontaneous invasion of sulphide into Thalassia rhizomes was recorded at low internal oxygen partial pressure during darkness at the die-off site. 4 A laboratory experiment showed that the internal oxygen dynamics depended on light availability, and hence plant photosynthesis, and on the oxygen content of the water column controlling passive oxygen diffusion from water column to leaves and belowground tissues in the dark. 5 Sulphide invasion only occurred at low internal oxygen content, and the rate of invasion was highly dependent on the oxygen supply to roots and rhizomes. Sulphide was slowly depleted from the tissues when high oxygen partial pressures were re-established through leaf photosynthesis. Coexistence of sulphide and oxygen in the tissues and the slow rate of sulphide depletion suggest that sulphide reoxidation is not biologically mediated within the tissues of Thalassia. 6 Our results support the hypothesis that internal oxygen stress, caused by low water column oxygen content or poor plant performance governed by other environmental factors, allows invasion of sulphide and that the internal plant oxygen and sulphide dynamics potentially are key factors in the episodes of sudden die-off in beds of Thalassia testudinum . Root anoxia followed by sulphide invasion may be a more general mechanism determining the growth and survival of other rooted plants in sulphate-rich aquatic environments.

Developing performance measures of mangrove wetlands using simulation models of hydrology, nutrient biogeochemistry, and community dynamics

The goal of mangrove restoration projects should be to improve community structure and ecosystem function of degraded coastal landscapes. This requires the ability to forecast how mangrove structure and function will respond to prescribed changes in site conditions including hydrology, topography, and geophysical energies. There are global, regional, and local factors that can explain gradients of regulators (e.g., salinity, sulfides), resources (nutrients, light, water), and hydroperiod (frequency, duration of flooding) that collectively account for stressors that result in diverse patterns of mangrove properties across a variety of environmental settings. Simulation models of hydrology, nutrient biogeochemistry, and vegetation dynamics have been developed to forecast patterns in mangroves in the Florida Coastal Everglades. These models provide insight to mangrove response to specific restoration alternatives, testing causal mechanisms of system degradation. We propose that these models can also assist in selecting performance measures for monitoring programs that evaluate project effectiveness. This selection process in turn improves model development and calibration for forecasting mangrove response to restoration alternatives. Hydrologic performance measures include soil regulators, particularly soil salinity, surface topography of mangrove landscape, and hydroperiod, including both the frequency and duration of flooding. Estuarine performance measures should include salinity of the bay, tidal amplitude, and conditions of fresh water discharge (included in the salinity value). The most important performance measures from the mangrove biogeochemistry model should include soil resources (bulk density, total nitrogen, and phosphorus) and soil accretion. Mangrove ecology performance measures should include forest dimension analysis (transects and/or plots), sapling recruitment, leaf area index, and faunal relationships. Estuarine ecology performance measures should include the habitat function of mangroves, which can be evaluated with growth rate of key species, habitat suitability analysis, isotope abundance of indicator species, and bird census. The list of performance measures can be modified according to the model output that is used to define the scientific goals during the restoration planning process that reflect specific goals of the project.

Modeling seasonal dynamics of small fish cohorts in fluctuating freshwater marsh landscapes

Small-bodied fishes constitute an important assemblage in many wetlands. In wetlands that dry periodically except for small permanent waterbodies, these fishes are quick to respond to change and can undergo large fluctuations in numbers and biomasses. An important aspect of landscapes that are mixtures of marsh and permanent waterbodies is that high rates of biomass production occur in the marshes during flooding phases, while the permanent waterbodies serve as refuges for many biotic components during the dry phases. The temporal and spatial dynamics of the small fishes are ecologically important, as these fishes provide a crucial food base for higher trophic levels, such as wading birds. We develop a simple model that is analytically tractable, describing the main processes of the spatio-temporal dynamics of a population of small-bodied fish in a seasonal wetland environment, consisting of marsh and permanent waterbodies. The population expands into newly flooded areas during the wet season and contracts during declining water levels in the dry season. If the marsh dries completely during these times (a drydown), the fish need refuge in permanent waterbodies. At least three new and general conclusions arise from the model: (1) there is an optimal rate at which fish should expand into a newly flooding area to maximize population production; (2) there is also a fluctuation amplitude of water level that maximizes fish production, and (3) there is an upper limit on the number of fish that can reach a permanent waterbody during a drydown, no matter how large the marsh surface area is that drains into the waterbody. Because water levels can be manipulated in many wetlands, it is useful to have an understanding of the role of these fluctuations.

Estimation of Ravine Sediment Production and Sediment Dynamics in the Lower Le Sueur River Watershed, Minnesota

This study focuses on quantifying explicitly the sediment budget of deeply incised ravines in the lower Le Sueur River watershed, in southern Minnesota. High-rate-gully-erosion equations along with the Universal Soil Loss Equation (USLE) were implemented in a numerical modeling approach that is based on a time-integration of the sediment balance equations. The model estimates the rates of ravine width and depth change and the amount of sediment periodically flushing from the ravines. Components of the sediment budget of the ravines were simulated with the model and results suggest that the ravine walls are the major sediment source in the ravines. A sensitivity analysis revealed that the erodibility coefficients of the gully bed and wall, the local slope angle and the Manning’s coefficient are the key parameters controlling the rate of sediment production. Recommendations to guide further monitoring efforts in the watershed and increased detail modeling approaches are highlighted as a result of this modeling effort.