Essays in applied economics
This thesis consists of two independent articles. In the first article, we examine the relationship between uncertainty and uncovered interest rate parity. It is well-known that uncovered interest rate parity does not hold empirically, especially at short horizons. But is it so? We conjecture that u...
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| Formato: | tesis doctoral |
| Estado: | Versión publicada |
| Fecha de publicación: | 2022 |
| País: | España |
| Recursos: | CBUC, CESCA |
| Repositorio: | TDR. Tesis Doctorales en Red |
| OAI Identifier: | oai:www.tdx.cat:10803/675575 |
| Acesso em linha: | http://hdl.handle.net/10803/675575 |
| Access Level: | acceso abierto |
| Palavra-chave: | Applied economics 33 |
| Resumo: | This thesis consists of two independent articles. In the first article, we examine the relationship between uncertainty and uncovered interest rate parity. It is well-known that uncovered interest rate parity does not hold empirically, especially at short horizons. But is it so? We conjecture that uncovered interest rate parity is more likely to hold in low uncertainty environments, relative to high uncertainty ones, since arbitrage opportunity gains become more uncertain in a highly unpredictable environment, thus blurring the relationship between exchange rates and interest rate differentials. We first provide a new exchange rate uncertainty index, that measures how unpredictable exchange rates are relative to their historical past. Then we use the new measure of uncertainty to provide empirical evidence that uncovered interest rate parity does hold in five industrialized countries vis-à-vis the US dollar at times when uncertainty is not exceptionally high and breaks down during periods of high uncertainty. In the second article, we examine the effect of rainfall on agricultural output and democratization in the world’s most agricultural countries. Like the agricultural economics literature, we find that the relationship between rainfall and agricultural output has an inverted U-shape, as agriculture is harmed by both droughts and very wet conditions. We also find the effect of rainfall on agricultural output to be transitory. At the same time, the relationship between rainfall and democratization is U-shaped in the short run and this effect persists in the long run, meaning that democratic transitions outlast the (transitory) rainfall shocks that started the democratization process. We show that the U-shaped relationship between rainfall and democratization is consistent with rainfall affecting democratization through its (inverted-U-shaped) effect on agricultural output. |
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