Banking Contagion under Different Exchange Rate Regimes in CEE

The global crisis of 2008 caused both liquidity shortage and increasing insolvency in the banking system. The study focuses on credit default contagion in the Central and Eastern European (CEE) region, which originated in bank runs generated by non-performing loans granted to non-financial clients. In terms of methodology, the paper relies on one hand on review of the literature, and on the other hand on a data survey with comparative and regression analysis. To uncover credit default contagion, the research focuses on the combined impact of foreign exchange rates and foreign private indebtedness.

Exchange rate overvaluation under hyperinflation: The case of Peru

This dissertation examines the behavior of the exchange rate under two different scenarios. The first one is characterized by, relatively, low inflation or a situation where prices adjust sluggishly. The second is a high inflation economy where prices respond very rapidly even to unanticipated shocks. In the first one, following a monetary expansion, the exchange rate overshoots, i.e. the nominal exchange rate depreciates at a faster pace than the price level. Under high levels of inflation, prices change faster than the exchange rate so the exchange rate undershoots its long run equilibrium value.^ The standard work in this area, Dornbusch (1976), explains the overshooting process in the context of perfect capital mobility and sluggish adjustment in the goods market. A monetary expansion will make the exchange rate increase beyond its long run equilibrium value. This dissertation expands on Dornbusch's model and provides an analysis of the exchange rate under conditions of currency substitution and price flexibility, characteristics of the Peruvian economy during the hyper inflation process that took place at the end of the 1980's. The results of the modified Dornbusch model reveal that, given a monetary expansion, the change in the price level will be larger than the change in the exchange rate if prices react more than proportionally to the monetary shock.^ We will expect this over-reaction in circumstances of high inflation when the velocity of money is increasing very rapidly. Increasing velocity of money, gives rise to a higher relative price variability which in turn contributes to the appearance of new financial (and also non-financial) instruments that report a higher return than the exchange rate, causing people to switch their demand for foreign exchange to this new assets. In the context of currency substitution, economic agents hoard and use foreign exchange as a store of value. The big decline in output originated by hyper inflation induces people to sell this hoarded money to finance current expenses, increasing the supply of foreign exchange in the market. Both, the decrease in demand and the increase in supply reduce the price of foreign exchange i.e. the real exchange rate. The findings mentioned above are tested using Peruvian data for the period January 1985-July 1990, the results of the econometric estimation confirm our findings in the theoretical model. ^

An evaluation of exchange rate policy and economic adjustment in Nicaragua, 1993--1995

Since the late 1970's, but particularly since the mid-1980s, the economy of Nicaragua has had persistent and large macroeconomic imbalances, while GDP per-capita has declined to 1950s' levels. By the second half of the 1990s, huge fiscal deficits and a reduction of foreign financing resulted in record hyperinflation. The Sandinista government's (1979–1990) harsh stabilization program in 1988–89 had only modest and short-lived success. It was doomed by their inability to lower the public sector deficit due to the war, plus diminishing financial support from abroad. Hyperinflation stopped only after their 1990 electoral defeat ended the war and massive aid began to flow in. Five years later, macroeconomic stability is still very fragile. A sluggish recovery of export agriculture plus import liberalization, have impeded a reduction of huge trade and current account deficits. Facing the prospects of diminished aid flows, the government's strategy has hinged on the achievement of a real devaluation through a crawling-peg adjustment of the nominal rate. However, at the end of 1995 the situation of the external accounts was still critical, and the modest progress achieved was attributable to cyclical terms-of-trade improvement and changes in the political outlook of agricultural producers. Using a Computable General Equilibrium Model and a Social Accounting Matrix constructed for this dissertation, the importance of structural rigidities in production and demand in explaining such outcome is shown. It is shown that under the plausible structural assumptions incorporated in the model, the role of devaluation in the adjustment process is restricted by structural rigidities. Moreover, contrary to the premise of the orthodox economic thinking behind the economic program, it is the contractionary effect of devaluation more than its expenditure-switching effects that provide the basis for is use in solving the external sector's problems. A fixed nominal exchange rate is found to lead to adverse results. The broader conclusion that emerges from the study is that a new social compact and a rapid increase in infrastructure spending plus fiscal support for the traditional agro-export activities is at the center of a successful adjustment towards external viability in Nicaragua. ^

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.

Exchange rate dynamics, structural breaks, and central bank interventions in Colombia

We evaluate the effectiveness of the Colombian Central Bank´s interventions in the foreign exchange market during the period 2000 to 2014 -- We examine the stochastic process that describes the exchange rate, with a focus on the detection of structural breaks or unit roots in the data to determine whether the Central Bank´s interventions were effective -- We find that the exchange rate can be described either by a random walk or by a trend-stationary model with multiple breaks -- In neither cases do we find any evidence that the exchange rate was affected by the Central Bank interventions

Forecasting errors, directional accuracy and profitability of currency trading: The case of EUR/USD exchange rate

We provide a comprehensive study of out-of-sample forecasts for the EUR/USD exchange rate based on multivariate macroeconomic models and forecast combinations. We use profit maximization measures based on directional accuracy and trading strategies in addition to standard loss minimization measures. When comparing predictive accuracy and profit measures, data snooping bias free tests are used. The results indicate that forecast combinations, in particular those based on principal components of forecasts, help to improve over benchmark trading strategies, although the excess return per unit of deviation is limited.

Volatility transmission between stock and exchange-rate markets: A connectedness analysis

This paper empirically investigates volatility transmission among stock and foreign exchange markets in seven major world economies during the period July 1988 to January 2015. To this end, we first perform a static and dynamic analysis to measure the total volatility connectedness in the entire period (the system-wide approach) using a framework recently proposed by Diebold and Yilmaz (2014). Second, we make use of a dynamic analysis to evaluate the net directional connectedness for each market. To gain further insights, we examine the time-varying behaviour of net pair-wise directional connectedness during the financial turmoil periods experienced in the sample period Our results suggest that slightly more than half of the total variance of the forecast errors is explained by shocks across markets rather than by idiosyncratic shocks. Furthermore, we find that volatility connectedness varies over time, with a surge during periods of increasing economic and financial instability.

Measuring persistence in nominal exchange rate: Implications for Angola’s entrepreneurship and business development

The purpose of this paper is to measure the degree of persistence in the Kwanza to US Dollar exchange rate. First, our results indicate that nominal exchange rates both in levels and in first differences are I(0), thus implying that the relative purchasing power parity hypothesis for Angola is not rejected. Secondly, we find a significant degree of persistence in both the formal and informal nominal exchange rates. Thirdly, the degree of persistence in the official market is significantly lower than in the formal market, while In first differences, persistence in the official exchange rate is substantially higher than in the informal exchange rate. Lastly, we could not find strong evidence that persistence has changed in levels throughout the sample period. By contrast, there is significant evidence that persistence in first differences has consistently increased after September 2003. These results have important policy implications as the National Bank of Angola is preparing to change its monetary and exchange-rate policy focus to a more inflation-targeting regime and to a more a flexible (or low-managed) exchange-rate regime.

Evaluation of wind-induced internal pressure in low-rise buildings: A multi scale experimental and numerical approach

Hurricane is one of the most destructive and costly natural hazard to the built environment and its impact on low-rise buildings, particularity, is beyond acceptable. The major objective of this research was to perform a parametric evaluation of internal pressure (IP) for wind-resistant design of low-rise buildings and wind-driven natural ventilation applications. For this purpose, a multi-scale experimental, i.e. full-scale at Wall of Wind (WoW) and small-scale at Boundary Layer Wind Tunnel (BLWT), and a Computational Fluid Dynamics (CFD) approach was adopted. This provided new capability to assess wind pressures realistically on internal volumes ranging from small spaces formed between roof tiles and its deck to attic to room partitions. Effects of sudden breaching, existing dominant openings on building envelopes as well as compartmentalization of building interior on the IP were systematically investigated. Results of this research indicated: (i) for sudden breaching of dominant openings, the transient overshooting response was lower than the subsequent steady state peak IP and internal volume correction for low-wind-speed testing facilities was necessary. For example a building without volume correction experienced a response four times faster and exhibited 30–40% lower mean and peak IP; (ii) for existing openings, vent openings uniformly distributed along the roof alleviated, whereas one sided openings aggravated the IP; (iii) larger dominant openings exhibited a higher IP on the building envelope, and an off-center opening on the wall exhibited (30–40%) higher IP than center located openings; (iv) compartmentalization amplified the intensity of IP and; (v) significant underneath pressure was measured for field tiles, warranting its consideration during net pressure evaluations. The study aimed at wind driven natural ventilation indicated: (i) the IP due to cross ventilation was 1.5 to 2.5 times higher for Ainlet/Aoutlet>1 compared to cases where Ainlet/Aoutlet<1, this in effect reduced the mixing of air inside the building and hence the ventilation effectiveness; (ii) the presence of multi-room partitioning increased the pressure differential and consequently the air exchange rate. Overall good agreement was found between the observed large-scale, small-scale and CFD based IP responses. Comparisons with ASCE 7-10 consistently demonstrated that the code underestimated peak positive and suction IP.

Evaluation of passive ventilation provision in domestic housing retrofit

Increasing energy efficiency in the residential sector, while maintaining adequate home ventilation for health and well-being, is proving to be a challenge. This study assesses the efficacy of passive ventilation strategies designed to comply with building regulations and imposed after housing energy-efficiency retrofits. In particular, it focuses on the provision of ventilation using background through-wall vents, which remains a common strategy in a number of European countries including Ireland and the UK, where vent sizes, related to floor area, are stipulated in building regulations. A collective of social housing, with background through-wall vents installed post thermal retrofit, is taken as a case study. These homes are modelled to interrogate the impact of the passive ventilation strategy on house air exchange rate and thermal heating energy loads. The reaction of occupants to through-wall vent installation is decidedly negative and many block vents to limit thermal discomfort and heat loss. Simulation studies show significant external air ingress through vents. A wide range of effective air change rates are observed when vents are sized without reference to building airtightness, and significant energy penalties result for the leakier homes. This study evaluates the provision of passive through-wall ventilation as part of a retrofit programme and shows it to have a number of drawbacks that may impact on the health of the building and its occupants and ultimately be at odds with the aims of achieving energy efficiency in the residential sector.

Investigation of air quality, comfort parameters and effectiveness for two floor-level air supply systems in classrooms

The method of distributing the outdoor air in classrooms has a major impact on indoor air quality and thermal comfort of pupils. In a previous study, ([11] Karimipanah T, Sandberg M, Awbi HB. A comparative study of different air distribution systems in a classroom. In: Proceedings of Roomvent 2000, vol. II, Reading, UK, 2000. p. 1013-18; [13] Karimipanah T, Sandberg M, Awbi HB, Blomqvist C. Effectiveness of confluent jets ventilation system for classrooms. In: Idoor Air 2005, Beijing, China, 2005 (to be presented).) presented results for four and two types of air distribution systems tested in a purpose built classroom with simulated occupancy as well as computational fluid dynamics (CFD) modelling. In this paper, the same experimental setup has been used to investigate the indoor environment in the classroom using confluent jet ventilation, see also ([12]Cho YJ, Awbi HB, Karimipanah T. The characteristics of wall confluent jets for ventilated enclosures. In: Proceedings of Roomvent 2004, Coimbra, Portugal, 2004.) Measurements of air speed, air temperature and tracer gas concentrations have been carried out for different thermal conditions. In addition, 56 cases of CFD simulations have been carried to provide additional information on the indoor air quality and comfort conditions throughout the classroom, such as ventilation effectiveness, air exchange effectiveness, effect of flow rate, effect of radiation, effect of supply temperature, etc., and these are compared with measured data.

Impacts of foreign exchange auctions on the informal market rate in Myanmar

Since the abolition of the official peg and the introduction of a managed float in April 2012, the Central Bank of Myanmar has operated the daily two–way auctions of foreign exchange aimed at smoothing exchange rate fluctuations. Despite the reforms to the foreign exchange regime, however, informal trading of foreign exchange remains pervasive. Using the daily informal exchange rate and Central Bank auction data, this study examines the impacts of auctions on the informal market rate. First, a VAR analysis indicates that the official rate did not Granger cause the informal rate. Second, GARCH models indicate that the auctions did not reduce the conditional variance of the informal rate returns. Overall, the auctions have only a quite modest impact on the informal exchange rate.

Rate regulated activities: a problemática do relato financeiro e da sua auditoria: o caso da navegação aérea no contexto europeu

A navegação aérea, enquanto atividade regulada, está sujeita a legislação específica, dependendo o seu exercício de autorização própria atribuída por uma entidade supervisora, que também verifica as tarifas a aplicar. O regulamento (CE) N.º 550/2004 identifica os requisitos comuns para a prestação de serviços de navegação aérea na Europa, dando particular importância à transparência do relato financeiro ao exigir a sua elaboração segundo as normas internacionais de contabilidade e a verificação por uma auditoria independente. Adicionalmente, o Regulamento (EU) N.º 1191/2010, que alterou o Regulamento (CE) N.º 1794/2006, estabelece o regime comum de tarifação de tais serviços, nomeadamente a recuperabilidade de desvios relativos ao volume de tráfego e aos gastos controláveis e não controláveis. Ao nível do enquadramento contabilístico, as atividades reguladas não têm uma norma específica. Existem dois projetos do IASB – um de 2009, que foi suspenso, e um de 2013, relativo à implementação de uma norma transitória que incentive a adoção das normas internacionais por entidades que exerçam atividades reguladas. Existe, ainda, uma norma do FASB não aplicável no espaço europeu. Os R&C de várias entidades evidenciam a existência de diferentes referenciais contabilísticos e que a generalidade dos relatórios de auditoria não tem reservas ou ênfases. Enquanto algumas entidades apenas divulgam os montantes dos desvios, outras entidades consideram que tais montantes se qualificam, reconhecendo-os. Tal facto decorre da inexistência de uma norma internacional que põe em causa a comparabilidade da informação financeira e dificulta o julgamento do auditor quanto à adequação ou não dos procedimentos adotados pela entidade.

Gas exchange during exercise in different evolutional stages of chronic Chagas' heart disease

OBJECTIVE: To compare gas exchange at rest and during exercise in patients with chronic Chagas' heart disease grouped according to the Los Andes clinical/hemodynamic classification. METHODS: We studied 15 healthy volunteers and 52 patients grouped according to the Los Andes clinical/hemodynamic classification as follows: 17 patients in group IA (normal electrocardiogram/echocardiogram), 9 patients in group IB (normal electrocardiogram and abnormal echocardiogram), 14 patients in group II (abnormal electrocardiogram/echocardiogram, without congestive heart failure), and 12 patients in group III (abnormal electrocardiogram/echocardiogram with congestive heart failure). The following variables were analyzed: oxygen consumption (V O2), carbon dioxide production (V CO2), gas exchange rate (R), inspiratory current volume (V IC), expiratory current volume (V EC), respiratory frequency, minute volume (V E), heart rate (HR), maximum load, O2 pulse, and ventilatory anaerobic threshold (AT). RESULTS: When compared with the healthy group, patients in groups II and III showed significant changes in the following variables: V O2peak, V CO2peak, V ICpeak, V ECpeak, E, HR, and maximum load. Group IA showed significantly better results for these same variables as compared with group III. CONCLUSION: The functional capacity of patients in the initial phase of chronic Chagas' heart disease is higher than that of patients in an advanced phase and shows a decrease that follows the loss in cardiac-hemodynamic performance.