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.

Discrete time models of the term structure of interest rates and interest rate contingent claims

In this study, discrete time one-factor models of the term structure of interest rates and their application to the pricing of interest rate contingent claims are examined theoretically and empirically. The first chapter provides a discussion of the issues involved in the pricing of interest rate contingent claims and a description of the Ho and Lee (1986), Maloney and Byrne (1989), and Black, Derman, and Toy (1990) discrete time models. In the second chapter, a general discrete time model of the term structure from which the Ho and Lee, Maloney and Byrne, and Black, Derman, and Toy models can all be obtained is presented. The general model also provides for the specification of an additional model, the ExtendedMB model. The third chapter illustrates the application of the discrete time models to the pricing of a variety of interest rate contingent claims. In the final chapter, the performance of the Ho and Lee, Black, Derman, and Toy, and ExtendedMB models in the pricing of Eurodollar futures options is investigated empirically. The results indicate that the Black, Derman, and Toy and ExtendedMB models outperform the Ho and Lee model. Little difference in the performance of the Black, Derman, and Toy and ExtendedMB models is detected. ^

Empirical study of exchange rates in Brazil, Canada and the Caribbean

This dissertation examines the monetary models of exchange rate determination for Brazil, Canada, and two countries in the Caribbean, namely, the Dominican Republic and Jamaica. With the exception of Canada, the others adopted the floating regime during the past ten years.^ The empirical validity of four seminal models in exchange rate economics were determined. Three of these models were entirely classical (Bilson and Frenkel) or Keynesian (Dornbusch) in nature. The fourth model (Real Interest Differential Model) was a mixture of the two schools of economic theory.^ There is no clear empirical evidence of the validity of the monetary models. However, the signs of the coefficients of the nominal interest differential variable were as predicted by the Keynesian hypothesis in the case of Canada and as predicted by the Chicago theorists in the remaining countries. Moreover, in case of Brazil, due to hyperinflation, the exchange rate is heavily influenced by domestic money supply.^ I also tested the purchasing power parity (PPP) for this same set of countries. For both the monetary as well as the PPP hypothesis, I tested for co-integration and applied ordinary least squares estimation procedure. The error correction model was also used for the PPP model, to determine convergence to equilibrium.^ The validity of PPP is also questionable for my set of countries. Endogeinity among the regressors as well as the lack of proper price indices are the contributing factors. More importantly, Central Bank intervention negate rapid adjustment of price and exchange rates to their equilibrium value. However, its forecasting capability for the period 1993-1994 is superior compared to the monetary models in two of the four cases.^ I conclude that in spite of the questionable validity of these models, the monetary models give better results in the case of the "smaller" economies like the Dominican Republic and Jamaica where monetary influences swamp the other determinants of exchange rate. ^

Self-other rating discrepancy and personality antecedents

This study explored individual difference factors to help explain the discrepancy that has been found to exist between self and other ratings in prior research. Particularly, personality characteristics of the self-rater were researched in the current study as a potential antecedent for self-other rating agreement. Self, peer, and supervisor ratings were provided for global performance as well as five competencies specific to the organization being examined. Four rating tendency categories, over-raters, under-raters, in-agreement (good), and in-agreement (poor), established in research by Atwater and Yammarino were used as the basis of the current research. The sample for rating comparisons within the current study consisted of 283 self and supervisor dyads and 275 for self and peer dyads from a large financial organization. Measures included a custom multi-rater performance instrument and the personality survey instrument, ASSESS, which measures 20 specific personality characteristics. MANCOVAs were then performed on this data to examine if specific personality characteristics significantly distinguished the four rating tendency groups. Examination of all personality dimensions and overall performance uncovered significant findings among rating groups for self-supervisor rating comparisons but not for self-peer rating comparisons. Examination of specific personality dimensions for self-supervisory ratings group comparisons and overall performance showed Detail Interest to be an important characteristic among the hypothesized variables. For self-supervisor rating comparisons and specific competencies, support was found for the hypothesized personality dimension of Fact-based Thinking which distinguished the four rating groups for the competency, Builds Relationships. For both self-supervisor and self-peer rating comparisons, the competencies, Builds Relationships and Leads in a Learning Environment, were found to have significant relationship with several personality characteristics, however, these relationships were not consistent with the hypotheses in the current study. Several unhypothesized personality dimensions were also found to distinguish rating groups for both self-supervisor and self-peer comparisons on overall performance and various competencies. Results of the current study hold implications for the training and development session that occur after a 360-degree evaluation process. Particularly, it is suggested that feedback sessions may be designed according to particular rating tendencies to maximize the interpretation, acceptance and use of evaluation information. ^

Illicit interest groups: The political impact of the Medellin drug trafficking organizations in Colombia

Although drug trafficking organizations (DTOs) exist and have an effect on health, crime, economies, and politics, little research has explored these entities as political organizations. Legal interest groups and movements have been found to influence domestic and international politics because they operate within legal parameters. Illicit groups, such as DTOs, have rarely been accounted for—especially in the literature on interest groups—though they play a measurable role in affecting domestic and international politics in similar ways. Using an interest group model, this dissertation analyzed DTOs as illicit interest groups (IIGs) to explain their political influence. The analysis included a study of group formation, development, and demise that examined IIG motivation, organization, and policy impact. The data for the study drew from primary and secondary sources, which include interviews with former DTO members and government officials, government documents, journalistic accounts, memoirs, and academic research. To illustrate the interest group model, the study examined Medellin-based DTO leaders, popularly known as the "Medellin Cartel." In particular, the study focused on the external factors that gave rise to DTOs in Colombia and how Medellin DTOs reacted to the implementation of counternarcotics efforts. The discussion was framed by the implementation of the 1979 Extradition Treaty negotiated between Colombia and the United States. The treaty was significant because as drug trafficking became the principal bilateral issue in the 1980s; extradition became a major method of combating the illicit drug business. The study's findings suggested that Medellin DTO leaders had a one-issue agenda and used a variety of political strategies to influence public opinion and all three branches of government—the judicial, the legislative, and the executive—in an effort to invalidate the 1979 Extradition Treaty. The changes in the life cycle of the 1979 Extradition Treaty correlated with changes in the political power of Medellin-based DTOs vis-à-vis the Colombian government, and international forces such as the U.S. government's push for tougher counternarcotics efforts.

Metacognitive Functions, Interest, and Student Engagement in the Writing Process: A Review of the Literature

The purpose of this paper is to draw on research that discusses the relationship between interest and metacognitive functions and its effect on engaging students in the writing process. Results indicate students who are interested in their writing activities engage in metacognitive strategies, remain focused, and complete their tasks.

Foreign aid and the national interest : the cases of the United States and Japan

Developed countries give foreign assistance for many reasons, one of which is the protection of national interests. Foreign aid gives a donor country leverage in international relations and is used as a tool of foreign policy. The United States and Japan are the two largest aid donors in the world. Each of these countries exert influence over specific regions through foreign assistance. Although the national interests of each country are different, both use foreign aid to protect these interests. This thesis discusses the means by which the United States and Japan use foreign aid in foreign policy. It looks specifically at U.S. food aid to Central America and Japanese aid to Asia.