ECON 3120
International Finance
Dr. Doris Geide-Stevenson
Project 2009
Over the course of the semester you will work on an extensive economic research paper. Your paper will focus on the explanation of exchange rate movements based on the development of economic fundamentals. Over the course of the semester you will be required to complete various parts of the project. Each student will choose one country will explain the exchange rate movements of this country's currency against the U.S. dollar. Each student should complete each of the seven parts of the project outlined below.
1. Find the exchange rate movement for your country against the U.S. $ for the last 20 years. Describe the currency movements that your currency underwent and highlight extreme values for your currency. Research and describe important historical and economic events in your country that may have contributed to the exchange rate fluctuations observed.
2. Over the course of the semester, as we study economic theories of exchange rate determination, keep track of all economic variables that are used in theoretical models to explain fluctuations in exchange rates. Compile a list of these variables and explain in which direction a particular change in these variables should drive the exchange rate and identify the theory which provides this insight (For example, we will find that foreign interest rates are thought to play a large role in bringing about changes in the exchange rate. So your list should contain foreign interest rates and discuss briefly how an increase in the foreign interest rate is thought to influence the exchange rate, i.e. would your currency appreciate or depreciate against the dollar.)
3. Find a research paper that uses some of the economic variables identified in 2) to study the exchange rate movement for your currency. Describe the basic approach taken in this paper (you may not understand all the methods used in the paper - just try to see how the paper relates to the material covered in the textbook and explain this link).
4. Formulate specific a research question that is important for the exchange rate movement of your country. Gather data for the economic variables that are pertinent to answer your research question. In a spreadsheet, collect all data for your country.
5. Perform your own analysis based on the data you collected. Describe the analysis you performed and the results you obtained. How do your results compare to the results expected from theory and to results found in the economic literature?
6. Summarize the state of empirical research on exchange rate movements based on the two articles listed below:
Rogoff, Kenneth, (2001) The failure of empirical exchange rate models: no longer new, but still true, Economic Policy Web Essay, http://www.economics.harvard.edu/faculty/rogoff/papers/EP_Web2001.pdf, website as of Jan. 16, 2007.
Engel, Charles, Exchange Rate Models, NBER Reporter: Research Summary Fall 2006, http://www.nber.org/reporter/fall06/engel.html, Website as of Jan. 16, 2007.
7. List of all sources cited (Works Cited list)
Part I - Due Oct. 5, 2009
1) Identify the country you would like to analyze. Compile monthly data for your country as far back as possible - try for about 20 years. Keep a list of all data sources used (make sure you have all the information needed for the 'Works Cited' section).
2) Hand in a preliminary list of economic variables that are thought to influence the exchange rate with a preliminary discussion of how a change in each variable influences the exchange rate based on insights from economic theory.
3) Start with a search for research papers on exchange rate movements. List at least 2 - 3 papers that you are considering for part 4 of the project.
In order to find sources, I would like all of you to start with a library search. See what the WSU library has to offer in your area of interest. As you go through the search, make sure you document your search strategy. Document whether you do a keyword or author search (eventually should do several different searches to make sure you turn up everything that is relevant). Document what kind of keywords etc. you actually use. Finally, compile a list of your top 3 resources this may involve taking a look at some other sources, briefly scanning the table of contents, in order to see whether the source is appropriate). Some sources may sound good, but may turn out to be too technical.
To find research papers, go to the business and economics database at http://library.weber.edu/articledatabases/default.asp. Try ECONLit (this can easily turn up articles that are very technical), ABI/Inform Global, Academic Search Elite and Business Source Premier. You may also use Google scholar.
Provide full bibliographic references and a short description of all your source. Please type all materials relevant to your projects.
Below are some examples of how to cite materials:
Webpage:
Commerzbank (1999), "Capital Markets, Eastern Europe," Macroeconomic Indicators, http://www.ccme.cz/pages/macroind.html, Website as of April 19, 1999, Prague.
Journal Article:
Obstfeld, M. (1982), "Can we Sterilize? Theory and Evidence," American Economic Review 72(20), 45-50.
Book (Monograph):
Eichengreen, B. (1999), "Toward a New International Financial Architecture - A Practical Post-Asia Agenda", Institute for International Economics, Washington, DC.
Part II: Due, November 9, 2009
1) Complete the first part of the project. Your country research should result in a 4 page paper. Make sure you cite sources throughout the paper. All your works cited should be listed in a works cited page. Your sources need to demonstrate that you have engaged in a thorough literature review concerning the macroeconomic history and institutional framework of your country. Follow a consistent format for your works cited page.
2) Search for research papers on exchange rate movements. List at least 3 journal articles that you are considering for part 4 of the project. For each paper, write a short summary of how the analysis described in the research papers relates to the statistical analysis you will perform.
3) Outline the type of statistical analysis you will conduct to help explain exchange rate movements for your currency. Depending on your statistics background the method you choose is very flexible. Formulate a testable hypothesis. Explain how your hypothesis is grounded in economic theory and explain how you will test your hypothesis. Explain what type of data you will need to test your hypothesis.
4) Provide the spreadsheet with data on the economic variables that relate to exchange rate movements. Provide full bibliographic references and a short description of all your source. Your choice of variables should be related to the hypothesis you are testing.
Final paper due: November 30