Title page for ETD etd-02072002-101509


Type of Document Master's Thesis
Author Thorne, Terrill D.
Author's Email Address tthorne@visuallink.com
URN etd-02072002-101509
Title DOES THE RELITIVE PRICE OF NON-TRADED GOODS CONTRIBUTE TO THE SHORT-TERM VOLATILITY IN THE U.S./CANADA REAL EXCHANGE RATE? A STOCHASTIC COEFFICIENT ESTIMATION APPROACH
Degree Master of Arts
Department Economics
Advisory Committee
Advisor Name Title
Waud, Roger N. Committee Chair
Lutton, Thomas J. Committee Member
Theroux, Richard P. Committee Member
Keywords
  • Exchange Rate
  • Volatility
  • Purchasing Power Parity
  • International Economics
  • Random Coefficient Model
Date of Defense 2002-01-21
Availability unrestricted
Abstract

This study uses a random coefficient estimation procedure to test the hypothesis that much of the volatility in the U.S./Canada real exchange rate over the time period 1971 through 1999 is due to the relative price of non-traded goods to traded goods. The model specification used in this study provides estimates of the sensitivity of movements in the U.S./Canada real exchange rate to movements in both the relative price of traded goods and the relative price of non-traded goods to traded goods in each of the two countries. I test for purchasing power parity in each of the two components of the model and address the question of volatility through the examination of the time profile of the respective coefficient estimates. The empirical results support the conclusion that the average value of the coefficient on the relative price of non-traded goods to traded goods component is smaller than that on the relative price of traded goods component. However, purchasing power parity in both components can not be rejected when the period of study is limited to 1971 through 1994. Furthermore, examination of the time profile of the random coefficients on the relative price of non-traded goods to traded goods component suggests that it is much more volatile and, therefore, quite significant in capturing the volatility in U.S./Canada real exchange rate movements.

With regard to purchasing power parity in both the traded goods component and the non-traded goods to traded goods component, these results are consistent with the implications of the theory of purchasing power parity. However, they are not entirely consistent with the evidence presented in recent literature. Specifically, evidence presented in recent studies can not support perfect purchasing power parity in either traded goods or non-traded goods and leads to the conclusion that non-traded goods are much less significant, if at all, in the determination of the U.S./Canada real exchange rate. This inconsistency with recent literature is most likely a result of the fact that the random coefficient modeling technique used in this study allows the coefficients to vary over time and, thereby, enables the volatility of both components to be captured in the model. Therefore, given the apparent significance of the relative price of non-traded goods to traded goods, the volatility of this component can logically be expected to significantly contribute to the volatility in the U.S./Canada real exchange rate.

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 28.8 Modem   56K Modem   ISDN (64 Kb)   ISDN (128 Kb)   Higher-speed Access 
  01TDTETD.pdf 367.02 Kb 00:01:41 00:00:52 00:00:45 00:00:22 00:00:01
  02AppendixAI.pdf 53.55 Kb 00:00:14 00:00:07 00:00:06 00:00:03 < 00:00:01
  03AppendixAII.pdf 54.34 Kb 00:00:15 00:00:07 00:00:06 00:00:03 < 00:00:01
  04AppendixB.pdf 6.60 Kb 00:00:01 < 00:00:01 < 00:00:01 < 00:00:01 < 00:00:01
  05AppendixC.pdf 63.27 Kb 00:00:17 00:00:09 00:00:07 00:00:03 < 00:00:01
  06AppendixD.pdf 39.50 Kb 00:00:10 00:00:05 00:00:04 00:00:02 < 00:00:01
  07AppendixE.pdf 36.60 Kb 00:00:10 00:00:05 00:00:04 00:00:02 < 00:00:01
  08TDTVITA.pdf 57.16 Kb 00:00:15 00:00:08 00:00:07 00:00:03 < 00:00:01

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