Date of Award
Doctor of Philosophy
The first essay evaluates the forecasting accuracy of monetary and random walk models of the exchange rate, using monthly data on the US and UK economies over the recent flexible exchange rate period. Instrumental-variable estimates of the simple monetary model are not supported by the data, while the full-information maximum-likelihood estimates of its rational-expectations counterpart are. The latter is found to forecast as well as the random walk model. Accordingly, in the context of the monetary model of the exchange rate, the explicit incorporation of the hypothesis of rational expectations permits a richer specification of the dynamics of the exchange rate process and thus an improvement in forecasting accuracy.;The second essay undertakes an econometric analysis of the exchange rate and current account of the balance of payments that seeks to establish whether the behaviour of these two variables can be explained by a small-scale choice-theoretic intertemporal general-equilibrium model in which both are endogenous. Quarterly data over the recent flexible exchange rate period serve as the case study. The model is found to be well-supported by the data and is capable of explaining a substantial proportion of exchange rate and current account movements. This suggests that the intertemporal general-equilibrium model constitutes an advancement in our ability to explain exchange rate behaviour over existing empirical exchange rate models.;The third essay constructs a stochastic intertemporal general-equilibrium model of savings and investment in a small open economy under conditions of perfect international capital mobility and examines, using simulation techniques, the predictions of the model for the dynamics of savings and investment in response to technological disturbances. The key findings of the study are that the cases of positively- (negatively-) autocorrelated disturbances to both domestic and foreign technology and of serially-uncorrelated disturbances to domestic (foreign) technology are characterized by a significantly positive (negative) relationship between saving and investment dynamics. These results suggest that high saving-investment correlations are not necessarily indicative of international capital immobility.
Finn, Mary Grace, "Essays In International Finance" (1987). Digitized Theses. 1630.