Three Empirical Studies on Exchange Rate Dynamics: Currency Misalignment, Uncovered Interest Rate Parity and Commodity Currencies
三篇關於匯率動態的實證研究﹕貨幣失衡，無拋補利率平價和商品貨幣
Student thesis: Doctoral Thesis
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Detail(s)
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| Award date | 5 Jun 2020 |
Link(s)
| Permanent Link | https://scholars.cityu.edu.hk/en/theses/theses(504678ab-03e2-4800-9eea-7c80cfa093c1).html |
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| Other link(s) | Links |
Abstract
This thesis focuses on three topics: the properties of RMB misalignment estimates, the uncovered interest rate parity puzzle and commodity currencies.
First, we adopt the Jackknife Model Averaging (JMA) technique to conduct a meta-regression analysis of 925 renminbi (RMB) misalignment estimates generated by 69 studies. The JMA method accounts for model selection and sampling uncertainties, and allows for non-nested model specifications and heteroskedasticity in assessing effects of study characteristics. The RMB misalignment estimates are found to be systematically affected by the choices of data, the theoretical setup and the empirical strategy, in addition to publication attributes of these studies. These study characteristic effects are quite robust to the choice of benchmark study characteristics, to alternative model averaging methods including the heteroskedasticity-robust Mallows approach, the information criterion approach, and the Bayesian model averaging. In evaluating the probabilistic property of RMB misalignment estimates implied by hypothetical composites of study characteristics, we find the evidence of a misaligned RMB, in general, is weak.
Second, using an empirical model that includes selected proxies for unobservable factors and allows for non-uniform effects due to model uncertainty and time-varying parameters, we find that the β-estimate – the coefficient estimate of the interest rate differential in uncovered interest rate parity (UIP) regressions – is closer to the value predicted under UIP. However, the specification that moderated UIP failure does not reduce the variability of the β-estimate, exhibits composition changes and time-varying parameters, and varies across exchange rates. These findings collaborate the scapegoat theory, and suggest that shifting roles of explanatory variables and time-varying effects contribute to the difficulty of rectifying the empirical UIP failure.
Lastly, we investigate the effects of real commodity price fluctuations on the real effective exchange rate in four commodity exporting countries: Australia, Canada, Norway and New Zealand. We construct a country-specific overall commodity price index and four commodity group price indexes of agriculture, energy, fertilizers and metals over 1990Q1 – 2018Q4 for each country. Our study shows that the dominant export commodity group – the commodity group that presents the largest export share among all the export commodity groups – is more likely to display a significantly positive effect on the real exchange rate than the other groups. As well, we observe significant effects of commodity prices on exchange rate when the US dollar appreciates. The asymmetric analysis finds that this pattern is associated with cases when commodity prices decline, but the effects are insignificant when commodity prices increase.
First, we adopt the Jackknife Model Averaging (JMA) technique to conduct a meta-regression analysis of 925 renminbi (RMB) misalignment estimates generated by 69 studies. The JMA method accounts for model selection and sampling uncertainties, and allows for non-nested model specifications and heteroskedasticity in assessing effects of study characteristics. The RMB misalignment estimates are found to be systematically affected by the choices of data, the theoretical setup and the empirical strategy, in addition to publication attributes of these studies. These study characteristic effects are quite robust to the choice of benchmark study characteristics, to alternative model averaging methods including the heteroskedasticity-robust Mallows approach, the information criterion approach, and the Bayesian model averaging. In evaluating the probabilistic property of RMB misalignment estimates implied by hypothetical composites of study characteristics, we find the evidence of a misaligned RMB, in general, is weak.
Second, using an empirical model that includes selected proxies for unobservable factors and allows for non-uniform effects due to model uncertainty and time-varying parameters, we find that the β-estimate – the coefficient estimate of the interest rate differential in uncovered interest rate parity (UIP) regressions – is closer to the value predicted under UIP. However, the specification that moderated UIP failure does not reduce the variability of the β-estimate, exhibits composition changes and time-varying parameters, and varies across exchange rates. These findings collaborate the scapegoat theory, and suggest that shifting roles of explanatory variables and time-varying effects contribute to the difficulty of rectifying the empirical UIP failure.
Lastly, we investigate the effects of real commodity price fluctuations on the real effective exchange rate in four commodity exporting countries: Australia, Canada, Norway and New Zealand. We construct a country-specific overall commodity price index and four commodity group price indexes of agriculture, energy, fertilizers and metals over 1990Q1 – 2018Q4 for each country. Our study shows that the dominant export commodity group – the commodity group that presents the largest export share among all the export commodity groups – is more likely to display a significantly positive effect on the real exchange rate than the other groups. As well, we observe significant effects of commodity prices on exchange rate when the US dollar appreciates. The asymmetric analysis finds that this pattern is associated with cases when commodity prices decline, but the effects are insignificant when commodity prices increase.
