Exchange rate modeling : policies, seasonality, and determination.

Summary This thesis addresses three critical issues in exchange rate modeling: policy, seasonality, and determination. First, it proposes to model exchange rate management policies by uncovering the de facto renminbi basket since China's shift from a fixed to an intermediate regime in June 2010. With a non-linear model that identifies long- and short-term objectives, we demonstrate a slight deviation of the renminbi from its parity with the U.S. dollar to a basket peg. Second, this thesis studies the monthly seasonality of the foreign exchange market. Focusing on the US dollar-Deutsche mark followed by the dollar-euro in a non-linear framework, we document the persistent effects of January and December on the foreign exchange market from 1971 to 2017. The German-US equity return differential and corresponding two-way equity flows reveal similar effects over two-thirds of the sample, suggesting that seasonal outperformance of one country's stock market relative to another may induce carry trades via simultaneous capital flight to the higher-yielding stock market and appreciation of its currency. Finally, this thesis proposes a new variable for the determination of exchange rates, including the relative uncertainty in the stock markets of two countries. Focusing on the yen-dollar exchange rate returns from 2009 to 2019 in a non-linear framework, we find that an increase in the relative uncertainty of a stock market will lead capital to flow to the safer stock market and appreciate its currency.