Access Type
Open Access Dissertation
Date of Award
January 2023
Degree Type
Dissertation
Degree Name
Ph.D.
Department
Economics
First Advisor
Liang Hu
Abstract
The focus of this dissertation is on the external imbalances for exchange rate determination and forecasting. We demonstrate that external imbalances maintain a relationship with exchange rate movements, while accounting for various forms of risk. We extend the analysis by considering the Covid time period and dynamic panel model specifications. Furthermore, we show how changing global risk appetite impacts exchange rate dynamics differently depending on the channel. We demonstrate by constructing portfolios based on different measures.
In the third chapter, we refine a construction of external imbalances, based on Gourinchas and Rey (2007). We create a direct bilateral measure based on the work of Milesi-Ferretti et al. (2010). We compare this to the IV-based bilateral construction of this measure by Della Corte, Sarno, and Sestieri (2012). Then, using these measures of external imbalances, we determine the role of external imbalances in exchange rate determination with an updated dataset that includes over a decade of data since the financial crisis of 2008. We use this time period after 2008 as our test set in a forecasting exercise, where we employ a mean-variance framework. We find evidence in favor for the measures of external imbalances, but not the direct bilateral construction.
Recommended Citation
Simion, Adrian, "External Imbalances And Exchange Rates" (2023). Wayne State University Dissertations. 3848.
https://digitalcommons.wayne.edu/oa_dissertations/3848