Chiang, Hui-Chu (2008-05). Essays on monetary policy and international trade. Doctoral Dissertation. Thesis uri icon

abstract

  • The dissertation consists of three essays. Chapter II examines the asymmetric effects of monetary policy on stock prices by using an unobserved components model with Markov-switching. My results show that monetary policy has negative effects on stock prices, which is consistent with the most recent literature. When the transitory component is in the low volatility state, a contractionary monetary policy significantly reduces stock prices. When the transitory component is in the high volatility state, the negative effect of monetary policy becomes larger, but the difference of the monetary policy effects between two states is not significant. Besides, a contractionary monetary policy will lower the probability of stock prices staying in the low volatility state. Monetary policy also reduces the total volatility of stock prices and the volatility of the transitory component of stock prices. Chapter III employs the smooth transition autoregressive (STAR) models to investigate the nonlinear effect of monetary policy on stock returns. The change in the Federal funds rate is used as an endogenous measure of monetary policy and the growth rate of industrial production is also considered in the model. My empirical results show that excess stock returns, the change in the Federal funds rate, and the growth rate of industrial production all can be expressed in the nonlinear STAR models. The estimated coefficients and the impulse response functions show that the effect of monetary policy on excess returns of stock prices is significantly negative and nonlinear. The change in the Federal funds rate has a larger negative effect on excess returns in the extreme low excess returns regime and the effect becomes smaller when the excess returns are greater than the threshold value. In chapter IV, I use a panel data approach to investigate the impact of exchange rate volatility on bilateral exports of the U.S. to the thirteen major trading partners. I further test the possibility of nonlinear effects of exchange rate volatility on exports by using threshold regression methods for non-dynamic panels with individual-specific fixed effects proposed by Hansen (1999). The results indicate that the effect of exchange rate volatility on bilateral exports is nonlinear. When the relative real GDP per capita of the exporting partner is lower than the threshold value, the response of bilateral U.S. exports to exchange rate volatility is positive. But, exchange rate volatility decreases bilateral exports of the U.S. to the exporting partners when their relative real GDP per capita surpass the threshold value.
  • The dissertation consists of three essays. Chapter II examines the asymmetric
    effects of monetary policy on stock prices by using an unobserved components model
    with Markov-switching. My results show that monetary policy has negative effects on
    stock prices, which is consistent with the most recent literature. When the transitory
    component is in the low volatility state, a contractionary monetary policy significantly
    reduces stock prices. When the transitory component is in the high volatility state, the
    negative effect of monetary policy becomes larger, but the difference of the monetary
    policy effects between two states is not significant. Besides, a contractionary monetary
    policy will lower the probability of stock prices staying in the low volatility state.
    Monetary policy also reduces the total volatility of stock prices and the volatility of the
    transitory component of stock prices.
    Chapter III employs the smooth transition autoregressive (STAR) models to
    investigate the nonlinear effect of monetary policy on stock returns. The change in the
    Federal funds rate is used as an endogenous measure of monetary policy and the growth
    rate of industrial production is also considered in the model. My empirical results show that excess stock returns, the change in the Federal funds rate, and the growth rate of
    industrial production all can be expressed in the nonlinear STAR models. The estimated
    coefficients and the impulse response functions show that the effect of monetary policy
    on excess returns of stock prices is significantly negative and nonlinear. The change in
    the Federal funds rate has a larger negative effect on excess returns in the extreme low
    excess returns regime and the effect becomes smaller when the excess returns are greater
    than the threshold value.
    In chapter IV, I use a panel data approach to investigate the impact of exchange
    rate volatility on bilateral exports of the U.S. to the thirteen major trading partners. I
    further test the possibility of nonlinear effects of exchange rate volatility on exports by
    using threshold regression methods for non-dynamic panels with individual-specific
    fixed effects proposed by Hansen (1999). The results indicate that the effect of exchange
    rate volatility on bilateral exports is nonlinear. When the relative real GDP per capita of
    the exporting partner is lower than the threshold value, the response of bilateral U.S.
    exports to exchange rate volatility is positive. But, exchange rate volatility decreases
    bilateral exports of the U.S. to the exporting partners when their relative real GDP per
    capita surpass the threshold value.

publication date

  • May 2008