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Essays on exchange rate determination : an analysis of industrialised and emerging markets

Ferreira, Jose Eduardo de Andrade (2005) Essays on exchange rate determination : an analysis of industrialised and emerging markets. Doctor of Philosophy (PhD) thesis, University of Kent. (doi:10.22024/UniKent/01.02.94346) (KAR id:94346)


The main contribution of this thesis is to assess the importance of economic fundamentals in affecting the nominal exchange rate behaviour for a sample of industrialised and emerging market economies. Industrialised and emerging markets differ in terms of economic stability conditions that may affect distinctly he performance of traditional exchange rate models. The thesis consists of investigating the effects of three interrelated determinants on the exchange rate variability which are examined from the early 1980s until the early 2000s: the effect of monetary fundamentals, the effect of rational speculative bubbles and the effect of foreign debt.

Firstly, we test the monetary model for both types of market economies by making use of panel techniques that allow for a high degree of heterogeneity across countries. We find partial support for the monetary model for industrialised market economies but not for emerging ones. This constitutes a puzzle as we would expect countries with greater monetary instability to show a stronger association between exchange rates and monetary fundamentals. Secondly, we test for the presence of a rational speculative bubble driving the stochastic process of exchange rates away from the equilibrium level defined by monetary fundamentals. Our findings reveal that the hypothesis of periodically collapsing bubbles driving the exchange rate away from the fundamentals solution cannot be accepted for a sample of four industrialised market economy countries. Moreover, the results also revealed significant non-linearities and different regimes. The importance of these findings suggests that linear monetary models may not be appropriate to examine exchange rate movements. Finally, we investigate the effects of foreign debts on nominal exchange rate volatility for a sample of industrialised and emerging market economies where the level of foreign indebtedness and the access to international credit markets differ substantially. We also test for the use of monetary policy and international reserves to stabilise potential exchange rate volatility. Our findings confirm that foreign debts do generate effects on exchange rate volatility in both types of market economies, with more significant impacts on financially fragile economies (emerging markets). The results also revealed that monetary authority interventions in the foreign exchange market are a common practice in both categories of economies. The importance of these findings commends government authorities to keep foreign debt at levels consistent with macroeconomic stability.

Item Type: Thesis (Doctor of Philosophy (PhD))
DOI/Identification number: 10.22024/UniKent/01.02.94346
Additional information: This thesis has been digitised by EThOS, the British Library digitisation service, for purposes of preservation and dissemination. It was uploaded to KAR on 25 April 2022 in order to hold its content and record within University of Kent systems. It is available Open Access using a Creative Commons Attribution, Non-commercial, No Derivatives ( licence so that the thesis and its author, can benefit from opportunities for increased readership and citation. This was done in line with University of Kent policies ( If you feel that your rights are compromised by open access to this thesis, or if you would like more information about its availability, please contact us at and we will seriously consider your claim under the terms of our Take-Down Policy (
Subjects: H Social Sciences > HF Commerce
Divisions: Divisions > Division of Human and Social Sciences > School of Economics
SWORD Depositor: SWORD Copy
Depositing User: SWORD Copy
Date Deposited: 14 Jul 2023 13:41 UTC
Last Modified: 14 Jul 2023 13:41 UTC
Resource URI: (The current URI for this page, for reference purposes)

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