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. ^

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. ^

Controls on Ecosystem Carbon Dioxide Exchange in Short- and Long-Hydroperiod Florida Everglades Freshwater Marshes

Although freshwater wetlands are among the most productive ecosystems on Earth, little is known of carbon dioxide (CO2) exchange in low latitude wetlands. The Everglades is an extensive, oligotrophic wetland in south Florida characterized by short- and long-hydroperiod marshes. Chamber-based CO2 exchange measurements were made to compare the marshes and examine the roles of primary producers, seasonality, and environmental drivers in determining exchange rates. Low rates of CO2 exchange were observed in both marshes with net ecosystem production reaching maxima of 3.77 and 4.28 μmol CO2 m−2 s−1 in short- and long-hydroperiod marshes, respectively. Fluxes of CO2 were affected by seasonality only in the short-hydroperiod marsh, where flux rates were significantly lower in the wet season than in the dry season. Emergent macrophytes dominated fluxes at both sites, though this was not the case for the short-hydroperiod marsh in the wet season. Water depth, a factor partly under human control, significantly affected gross ecosystem production at the short-hydroperiod marsh. As Everglades ecosystem restoration proceeds, leading to deeper water and longer hydroperiods, productivity in short-hydroperiod marshes will likely be more negatively affected than in long-hydroperiod marshes. The Everglades stand in contrast to many freshwater wetlands because of ecosystem-wide low productivity rates.

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 costs and controls of flowering and fruiting in {\it Spondias purpurea\/}

Small potted trees of Spondias purpurea were monitored to determine the costs and controls of flowering and fruiting. The effect of photoperiod, extremes in moisture and temperature, and defoliation were examined. The carbon exchange rates of the leaves, shoots and fruits were determined. Light response curves and diurnal levels were also investigated. $\sp{13}$Carbon labeling was used to determine which plant parts are carbon sinks. Photoperiod induces dormancy and bud activity. Extremes in soil moisture and temperature induce leaf fall. Flowers, fruits, and roots are carbon sinks. The results were used to develop a phenological model with latitude, soil moisture, and air temperature as variables. ^

Essays on international macroeconomics and conflict analysis

This dissertation addressed two broad problems in international macroeconomics and conflict analysis. The first problem in the first chapter looked at the behavior of exchange rate and its interaction with industry-level tradable goods prices for three countries, USA, UK and Japan. This question has important monetary policy implications. Here, I computed to what extent changes in exchange rate affected prices of consumer, producer, and export goods. I also studied the timing of these changes in these prices. My results, based on thirty-four industrial prices for USA, UK and Japan, supported the view that changes in exchange rates significantly affect prices of industrial and consumer goods. It also provided an insight to the underlying economic process that led to changes in relative prices. ^ In the second chapter, I explored the predictability of future inflation by incorporating shocks to exchange rates and clearly specified the transmission mechanisms that link exchange rates to industry-level consumer and producer prices. Employing a variety of linear and state-of-the-art nonlinear models, I also predicted growth rates of future prices. Comparing levels of inflation obtained from the above approaches showed superiority of the structural model incorporating the exchange rate pass-through effect. ^ The second broad issue addressed in the third chapter of the dissertation investigated the economic motives for conflict, manifested by rebellion and civil war for seventeen Latin American countries. Based on the analytical framework of Garfinkel, Skaperdas and Syropoulos (2004), I employed ordinal regressions and Markov switching for a panel of seventeen countries to identify trade and openness factors responsible for conflict occurrence and intensity. The results suggested that increased trade openness reduced high intensity domestic conflicts but overdependence on agricultural exports, along with a lack of income earning opportunities lead to more conflicts. Thereafter, using the Cox Proportional Hazard model I studied “conflict duration” and found that over-reliance on agricultural exports explained a major part of the length of conflicts in addition to various socio-political factors. ^

The exchange of carbon, nitrogen, and phosphorus in dwarf and fringe mangroves of the oligotrophic southern Everglades

Water management has altered both the natural timing and volume of freshwater delivered to Everglades National Park. This is especially true for Taylor Slough and the C-111 basin, as hypersaline events in Florida Bay have been linked to reduced freshwater flow in this area. In light of recent efforts to restore historical flows to the eastern Everglades, an understanding of the impact of this hydrologic shift is needed in order to predict the trajectory of restoration. I conducted a study to assess the importance of season, water chemistry, and hydrologic conditions on the exchange of nutrients in dwarf and fringe mangrove wetlands along Taylor Slough. I also performed mangrove leaf decomposition studies to determine the contribution of biotic and abiotic processes to mass loss, the effect of salinity and season on degradation rates, and the importance of this litter component as a rapid source of nutrients. ^ Dwarf mangrove wetlands consistently imported total nutrients (C, N, and P) and released NO2− +NO3 −, with enhanced release during the dry season. Ammonium flux shifted from uptake to release over the study period. Dissolved phosphate activity was difficult to discern in either wetland, as concentrations were often below detection limits. Fluxes of dissolved inorganic nitrogen in the fringe wetland were positively related to DIN concentrations. The opposite was found for total nitrogen in the fringe wetland. A dynamic budget revealed a net annual export of TN to Florida Bay that was highest during the wet season. Simulated increases and decreases in freshwater flow yielded reduced exports of TN to Florida Bay as a result of changes in subsystem and water flux characteristics. Finally, abiotic processes yielded substantial nutrient and mass losses from senesced leaves with little influence of salinity. Dwarf mangrove leaf litter appeared to be a considerable source of nutrients to the water column of this highly oligotrophic wetland. To summarize, nutrient dynamics at the subsystem level were sensitive to short-term changes in hydrologic and seasonal conditions. These findings suggest that increased freshwater flow has the potential to lead to long-term, system-level changes that may reach as far as eastern Florida Bay. ^

Seasonal differences in the CO2 exchange of a short-hydroperiod Florida Everglades marsh

Although wetlands are among the world's most productive ecosystems, little is known of long-term CO2 exchange in tropical and subtropical wetlands. The Everglades is a highly managed wetlands complex occupying >6000 km2 in south Florida. This ecosystem is oligotrophic, but extremely high rates of productivity have been previously reported. To evaluate CO2 exchange and its response to seasonality (dry vs. wet season) in the Everglades, an eddy covariance tower was established in a short-hydroperiod marl marsh. Rates of net ecosystem exchange and ecosystem respiration were small year-round and declined in the wet season relative to the dry season. Inundation reduced macrophyte CO2 uptake, substantially limiting gross ecosystem production. While light and air temperature exerted the primary controls on net ecosystem exchange and ecosystem respiration in the dry season, inundation weakened these relationships. The ecosystem shifted from a CO2 sink in the dry season to a CO2 source in the wet season; however, the marsh was a small carbon sink on an annual basis. Net ecosystem production, ecosystem respiration, and gross ecosystem production were −49.9, 446.1 and 496.0 g C m−2 year−1, respectively. Unexpectedly low CO2 flux rates and annual production distinguish the Everglades from many other wetlands. Nonetheless, impending changes in water management are likely to alter the CO2 balance of this wetland and may increase the source strength of these extensive short-hydroperiod wetlands.

Investigation of spatial patterns of ground-water exchange with lakes, using a three-dimensional numerical model

Hydrogeologic variables controlling groundwater exchange with inflow and flow-through lakes were simulated using a three-dimensional numerical model (MODFLOW) to investigate and quantify spatial patterns of lake bed seepage and hydraulic head distributions in the porous medium surrounding the lakes. Also, the total annual inflow and outflow were calculated as a percentage of lake volume for flow-through lake simulations. The general exponential decline of seepage rates with distance offshore was best demonstrated at lower anisotropy ratio (i.e., Kh/Kv = 1, 10), with increasing deviation from the exponential pattern as anisotropy was increased to 100 and 1000. 2-D vertical section models constructed for comparison with 3-D models showed that groundwater heads and seepages were higher in 3-D simulations. Addition of low conductivity lake sediments decreased seepage rates nearshore and increased seepage rates offshore in inflow lakes, and increased the area of groundwater inseepage on the beds of flow-through lakes. Introduction of heterogeneity into the medium decreased the water table and seepage ratesnearshore, and increased seepage rates offshore in inflow lakes. A laterally restricted aquifer located at the downgradient side of the flow-through lake increased the area of outseepage. Recharge rate, lake depth and lake bed slope had relatively little effect on the spatial patterns of seepage rates and groundwater exchange with lakes.