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 issue of macroeconomic closure revisited and extended

Léon Walras (1874) already had realized that his neo-classical general equilibrium model could not accommodate autonomous investment. Sen analysed the same issue in a simple, one-sector macroeconomic model of a closed economy. He showed that fixing investment in the model, built strictly on neo-classical assumptions, would make the system overdetermined, thus, one should loosen some neo-classical condition of competitive equilibrium. He analysed three not neo-classical “closure options”, which could make the model well determined in the case of fixed investment. Others later extended his list and it showed that the closure dilemma arises in the more complex computable general equilibrium (CGE) models as well, as does the choice of adjustment mechanism assumed to bring about equilibrium at the macro level. By means of numerical models, it was also illustrated that the adopted closure rule can significantly affect the results of policy simulations based on a CGE model. Despite these warnings, the issue of macro closure is often neglected in policy simulations. It is, therefore, worth revisiting the issue and demonstrating by further examples its importance, as well as pointing out that the closure problem in the CGE models extends well beyond the problem of how to incorporate autonomous investment into a CGE model. Several closure rules are discussed in this paper and their diverse outcomes are illustrated by numerical models calibrated on statistical data. First, the analyses is done in a one-sector model, similar to Sen’s, but extended into a model of an open economy. Next, the same analyses are repeated using a fully-fledged multisectoral CGE model, calibrated on the same statistical data. Comparing the results obtained by the two models it is shown that although, using the same closure option, they generate quite similar results in terms of the direction and – to a somewhat lesser extent – of the magnitude of change in the main macro variables, the predictions of the multi-sectoral CGE model are clearly more realistic and balanced.

A Sustainable Century? Genuine Savings in developing and developed countries, 1900-2000

This chapter traces the long-run development of Genuine Savings (GS) using a panel of eleven countries during the twentieth century. This panel covers a number of developed countries (Great Britain, Germany, Switzerland, France, the US, and Australia) as well as a set of resource-abundant countries in Latin America (Argentina, Brazil, Chile, Colombia, and Mexico). These countries represent approximately 50 percent of the world’s output in terms of Gross Domestic Product (GDP) by 1950, and include large economies and small open economies, and resource-rich and resource-scarce countries, thus allowing us to compare their historical experiences. Components of GS considered include physical and human capital as well as resource extraction and pollution damages. Generally, we find evidence of positive GS over the course of the twentieth century, although the two World Wars and the Great Depression left considerable marks. Also, we found striking differences between Latin American and developed countries when Total Factor Productivity (TFP) is included; this could be a signal of natural resource curse or technological gaps unnoticed in previous works.

The effect on the performance of listed family and non-family firms

Purpose: The purpose of this paper is to examine whether the ownership of public firms is related to accounting and market performance, comparing family and non-family listed firms. Design/methodology/approach: We use regression analysis, considering a sample of Portuguese family and non-family firms for the period between 1999 and 2010. Findings: Overall, the results show that family firms are older, are more indebted and have higher debt costs than non-family firms. However, they present lower levels of risk. The evidence suggests that family firms outperform non-family firms when we consider a market performance measure. The market performance of family-controlled firms is more sensitive to the crisis periods and age, compared to their counterparts. The empirical findings suggest that under economic adversity, the performance is especially compromised by the firms’ age. Research limitations/implications: A limitation of this study is the small size of the sample, which derives from the small size of the Portuguese stock market, the Euronext Lisbon. Originality/value: This paper offers some insights on the ownership of public firms and firm performance by investigating a small European economy. The study also contributes to the stream of firm performance, considering new independent variables as determinants of firm performance, such as operational risk. Finally, the study examines the interaction between ownership and performance under both steady and adverse economic conditions, giving the opportunity to analyze whether firm performance differs according to market conditions.

América Latina y el Caribe: Variables de competitividad para la dinámica empresarial 2007 - 2014

Este estudio realiza una categorización regional de los países en América Latina con respecto de las categorizaciones globales teniendo en cuenta los índices de competitividad, crecimiento económico y desarrollo humano. El objetivo es actualizar los análisis sobre la situación regional de forma cuantitativa involucrando el grado de asimetría en la competitividad. Esta relación entre el posicionamiento global y regional ha influenciado directamente la evolución del tejido empresarial

Does international trade produce convergence?

In spite of increasing globalization around the world, the effects of international trade on economic growth are not very clear. I consider an endogenous economic growth model in an open economy with the Home Market Effect (HME) and non-homothetic preferences in order to identify some determinants of the different results in this relationship. The model shows how trade between similar countries leads to convergence in economic growth when knowledge spillovers are present, while trade between very asymmetric countries produces divergence and may become trade in a poverty or growth trap. The results for welfare move in the same direction as economic growth since convergence implies increases in welfare for both countries, while divergence leads to increases in welfare for the largest country and the opposite for its commercial partner in the absence of knowledge spillovers. International trade does not implicate greater welfare as is usual in a static context under CES preferences.

Learning in and beyond small business advisory programmes

The purpose of this paper is to analyse how participants learn in small business advisory programmes and to explore the impact of these learning programmes on the development of reflective learning dispositions in participants. The research involves two case studies of small business advisory programmes in Queensland, a state of Australia. One involves training in the use of GPS/GIS technology amongst rural SMEs and the other seeks to develop improved management and operational capabilities in regional and metropolitan manufacturing SMEs. Face to face semi-structured interviews were conducted throughout rural, regional and metropolitan Queensland with participants, trainers and senior executives in the administering organisations that ran the programmes. Learning in these programmes occurs through a combination of interaction with others and the adoption of practice-based and learner-centred processes. The impact of the programmes on participants includes the development of reflective learning dispositions, improved confidence in learning and appreciation of the value of new knowledge to their business. The research suggests that small business training programmes have the potential to affect the development of critical reflective learning dispositions in participants which is of fundamental importance to the development of a learning or knowledge economy.

Cetuximab plus chemotherapy in patients with advanced non-small-cell lung cancer (FLEX) : an open-label randomised phase III trial

Background: Use of cetuximab, a monoclonal antibody targeting the epidermal growth factor receptor (EGFR), has the potential to increase survival in patients with advanced non-small-cell lung cancer. We therefore compared chemotherapy plus cetuximab with chemotherapy alone in patients with advanced EGFR-positive non-small-cell lung cancer. Methods: In a multinational, multicentre, open-label, phase III trial, chemotherapy-naive patients (≥18 years) with advanced EGFR-expressing histologically or cytologically proven stage wet IIIB or stage IV non-small-cell lung cancer were randomly assigned in a 1:1 ratio to chemotherapy plus cetuximab or just chemotherapy. Chemotherapy was cisplatin 80 mg/m 2 intravenous infusion on day 1, and vinorelbine 25 mg/m 2 intravenous infusion on days 1 and 8 of every 3-week cycle) for up to six cycles. Cetuximab-at a starting dose of 400 mg/m 2 intravenous infusion over 2 h on day 1, and from day 8 onwards at 250 mg/m 2 over 1 h per week-was continued after the end of chemotherapy until disease progression or unacceptable toxicity had occurred. The primary endpoint was overall survival. Analysis was by intention to treat. This study is registered with ClinicalTrials.gov, number NCT00148798. Findings: Between October, 2004, and January, 2006, 1125 patients were randomly assigned to chemotherapy plus cetuximab (n=557) or chemotherapy alone (n=568). Patients given chemotherapy plus cetuximab survived longer than those in the chemotherapy-alone group (median 11·3 months vs 10·1 months; hazard ratio for death 0·871 [95% CI 0·762-0·996]; p=0·044). The main cetuximab-related adverse event was acne-like rash (57 [10%] of 548, grade 3). Interpretation: Addition of cetuximab to platinum-based chemotherapy represents a new treatment option for patients with advanced non-small-cell lung cancer. Funding: Merck KGaA. © 2009 Elsevier Ltd. All rights reserved.

Resolving the conflicts of sustainable world heritage landscapes in cities : fully open or limited access for visitors?

World Heritage Landscapes (WHLs) are receiving increased attention from researchers, urban planners, managers, and policy makers and many heritage values and resources are becoming irreversibly lost. This phenomenon is especially prominent for WHLs located in cities, where greater development opportunities are involved. Decision making for sustainable urban landscape planning, conservation and management of WHLs often takes place from an economic perspective, especially in developing countries. This, together with the uncertain source of funding to cover WHL operating and maintenance costs, has resulted in many urban managers seeking private sector funding either in the form of visitor access fees or leasing part of the site for high-rental facilities such as five star hotels, clubs and expensive restaurants. For the former, this can result in low-income urban citizens being unable to afford the access fees and hence contradicting the principle of equal access for all; while, for the latter, the principle of open access for all is equally violated. To resolve this conflict, a game model is developed to determine how urban managers should allocate WHL spaces to maximize the combination of economic, social and ecological benefits and cultural values. A case study is provided of the Hangzhou's West Lake Scenic Area, a WHL located at the centre of Hangzhou city, in which several high-rental facilities have recently been closed down by the local authorities due to charges of elitism and misuse of public funds by government officials. The result shows that the best solution is to lease a small space with high rents and leave the remainder of the site to the public. This solution is likely to be applicable only in cities with a strong economy.

Open innovation in small and medium-sized enterprises (SMEs): External knowledge sourcing strategies and internal organizational facilitators

In this paper we explore how small and medium-sized enterprises (SMEs) engage in external knowledge sourcing, a form of inbound open innovation. We draw upon a sample of 1,411 SMEs and empirically conceptualize a typology of strategic types of external knowledge sourcing, namely minimal, supply-chain, technology-oriented, application-oriented, and full-scope sourcing. Each strategy reflects the nature of external interactions and is linked to a distinct mixture of four internal practices for managing innovation. Both full-scope and application-oriented sourcing offer performance benefits and are associated with a stronger focus on managing innovation. However, they differ in their managerial focus on strategic and operational aspects.

Bayesian estimation of small effects in exercise and sports science

The aim of this paper is to provide a Bayesian formulation of the so-called magnitude-based inference approach to quantifying and interpreting effects, and in a case study example provide accurate probabilistic statements that correspond to the intended magnitude-based inferences. The model is described in the context of a published small-scale athlete study which employed a magnitude-based inference approach to compare the effect of two altitude training regimens (live high-train low (LHTL), and intermittent hypoxic exposure (IHE)) on running performance and blood measurements of elite triathletes. The posterior distributions, and corresponding point and interval estimates, for the parameters and associated effects and comparisons of interest, were estimated using Markov chain Monte Carlo simulations. The Bayesian analysis was shown to provide more direct probabilistic comparisons of treatments and able to identify small effects of interest. The approach avoided asymptotic assumptions and overcame issues such as multiple testing. Bayesian analysis of unscaled effects showed a probability of 0.96 that LHTL yields a substantially greater increase in hemoglobin mass than IHE, a 0.93 probability of a substantially greater improvement in running economy and a greater than 0.96 probability that both IHE and LHTL yield a substantially greater improvement in maximum blood lactate concentration compared to a Placebo. The conclusions are consistent with those obtained using a ‘magnitude-based inference’ approach that has been promoted in the field. The paper demonstrates that a fully Bayesian analysis is a simple and effective way of analysing small effects, providing a rich set of results that are straightforward to interpret in terms of probabilistic statements.

Afatinib versus gefitinib as first-line treatment of patients with EGFR mutation-positive non-small-cell lung cancer (LUX-Lung 7): a phase 2B, open-label, randomised controlled trial

Background The irreversible ErbB family blocker afatinib and the reversible EGFR tyrosine kinase inhibitor gefitinib are approved for first-line treatment of EGFR mutation-positive non-small-cell lung cancer (NSCLC). We aimed to compare the efficacy and safety of afatinib and gefitinib in this setting. Methods This multicentre, international, open-label, exploratory, randomised controlled phase 2B trial (LUX-Lung 7) was done at 64 centres in 13 countries. Treatment-naive patients with stage IIIB or IV NSCLC and a common EGFR mutation (exon 19 deletion or Leu858Arg) were randomly assigned (1:1) to receive afatinib (40 mg per day) or gefitinib (250 mg per day) until disease progression, or beyond if deemed beneficial by the investigator. Randomisation, stratified by EGFR mutation type and status of brain metastases, was done centrally using a validated number generating system implemented via an interactive voice or web-based response system with a block size of four. Clinicians and patients were not masked to treatment allocation; independent review of tumour response was done in a blinded manner. Coprimary endpoints were progression-free survival by independent central review, time-to-treatment failure, and overall survival. Efficacy analyses were done in the intention-to-treat population and safety analyses were done in patients who received at least one dose of study drug. This ongoing study is registered with ClinicalTrials.gov, number NCT01466660. Findings Between Dec 13, 2011, and Aug 8, 2013, 319 patients were randomly assigned (160 to afatinib and 159 to gefitinib). Median follow-up was 27·3 months (IQR 15·3–33·9). Progression-free survival (median 11·0 months [95% CI 10·6–12·9] with afatinib vs 10·9 months [9·1–11·5] with gefitinib; hazard ratio [HR] 0·73 [95% CI 0·57–0·95], p=0·017) and time-to-treatment failure (median 13·7 months [95% CI 11·9–15·0] with afatinib vs 11·5 months [10·1–13·1] with gefitinib; HR 0·73 [95% CI 0·58–0·92], p=0·0073) were significantly longer with afatinib than with gefitinib. Overall survival data are not mature. The most common treatment-related grade 3 or 4 adverse events were diarrhoea (20 [13%] of 160 patients given afatinib vs two [1%] of 159 given gefitinib) and rash or acne (15 [9%] patients given afatinib vs five [3%] of those given gefitinib) and liver enzyme elevations (no patients given afatinib vs 14 [9%] of those given gefitinib). Serious treatment-related adverse events occurred in 17 (11%) patients in the afatinib group and seven (4%) in the gefitinib group. Ten (6%) patients in each group discontinued treatment due to drug-related adverse events. 15 (9%) fatal adverse events occurred in the afatinib group and ten (6%) in the gefitinib group. All but one of these deaths were considered unrelated to treatment; one patient in the gefitinib group died from drug-related hepatic and renal failure. Interpretation Afatinib significantly improved outcomes in treatment-naive patients with EGFR-mutated NSCLC compared with gefitinib, with a manageable tolerability profile. These data are potentially important for clinical decision making in this patient population.