Research proposal structure
What are the short and long-term determinants of exchange rates?
Area and context of research
For many years, the fluctuation of exchange rate has always been an interesting topic for many researchers. Most economists think that the volatility of exchange rates are driven by macroeconomic phenomena (Rose, 1994). However, since the 1980s, many researchers have thrown doubt on the explanation of exchange rate using macroeconomic model. Flood and Rose (1995) said that the exchange rate ‘appears to have a life of its own’. This Research Proposal also seeks to find out whether exchange rates do have a random walk and attempts to explore its determinants in both the short run and long run. In particular, it looks at the relationship between exchange rate volatility and macroeconomic fundamentals as well as other factors such as rational expectations, economic openness, consumer confidence, political events and asset market variables. Understanding the impact of the determinants of exchange rate would help to promote currency stability and greater certainty for international trade, which in turn, enable policy makers to pursue greater economic stability. This research will focus on three currencies: UK Pound, US Dollar and the Euro.
Proposed chapter structure
Abstract
• Provide some general ideas about the research topic and a summary of the key findings
Introduction
• Present the reasons behind and the motivations of the research project, i.e. to provide higher
certainty for international trade and pursue greater economic stability.
• A summary of the key findings by previous literatures.
• Make clear which literature provides which variables that are considered as determinants of
exchange rate’s behaviours.
• The scope of the research, i.e. consider only 3 types of currencies: UK Pound, US Dollar and
Euro; having UK as the domestic economy from 1970-2008.
The underlying framework
• Explain the economic theory of the model, i.e. exchange rates are said to be determined by #p#分頁(yè)標(biāo)題#e#
macroeconomic fundamentals, purchasing power parity, …
• Explain how the variables are constructed, e.g. rational expectation is derived from relative
interest rate, how the dummy variables for political events is obtained, …
• Explain why the framework should be divided into short run and long run model
The short run model
• Outline economic theory of the short run model
• Identify key variables
• Construct model and explain the method
• Hypothesis testing and conclusions
The long run model
• Outline economic theory of the long run model
• Identify key variables
• Construct model and explain the method
• Hypothesis testing and conclusions
Summary and conclusion
References Bibliopraphy
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Economic Research, Cambridge: NBER, working paper no. 3478, October
Blomberg, S. B. and Hess, G. D. (1997) Politics and Exchange Rate Forecasts. Journal of
International Economics, vol.43, pp.189-205
Chiang, T. C. (1985) The Impact of Unexpected Macro-Disturbance on Exchange Rate in Monetary
Model. Quarterly Review of Economics and Business, vol.25, no.2, Summer, pp.49-59
Devereux, M. B. (1997) Real Exchange Rates and Macroeconomics: Evidence and Theory. Canadian
Journal of Economics, no.4a, November, pp.773-808
Dornbusch, R. (1976) Expectations and Exchange Rate Dynamics. The Journal of Political Economy,
vol.84, no.6, December, pp.1161-1176
Duarte, M. (2007) Exchange Rates and Business Cycles Across Countries. Economic Quarterly,
vol.93, no.1, Winter 2007, pp.57-76 m.elviscollections.com
Edison, H. J. (1987) Purchasing Power Parity in the Long Run: A Test of the Dollar/Pound Exchange
Rate 1890-1978. Journal of Money, Credit and Banking, vol.19, no.3, August, pp.376-387
Frankel, J. A. and Rose, A. K. (1994) A Survey of Empirical Research on Nominal Exchange Rates.
National Bureau of Economic Research,Cambridge: NBER,working paper no. 4865, September
Laganà, G. and Sgro, P. M. (2007) The Exchange Rate Disconnect Puzzle: A Resolution? Asia-
Pacific Journal of Accounting & Economics, no.14, pp.43-68
Lee-Lee, C. and Hui-Boon, T. (2007) Macroeconomic Factors and Exchange Rate Volatility: #p#分頁(yè)標(biāo)題#e#
Evidence from Four Neighbouring ASEAN Economies. Studies in Economics and Finance, vol.24,
no.4, pp.266-285
Rose, A. K. (1994) Are Exchange Rates Macroeconomic Phenomena. Economic Review – Federal
Reserve Bank of San Francisco, vol.1, pp.19
Russ, K. N. (2004) Exchange Rate Variability and Foreign Direct Investment. Ph.D. dissertation, The
Johns Hopkins University, United States -- Maryland. Retrieved April 28, 2009, from ABI/INFORM
Global database. (Publication No. AAT 3155674).
Williams, G. et al (1998) Are Exchange Rates Determined by Macroeconomic Factors? Applied
Economics, vol.30, pp.553-567
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