Essays on foreign exchange forecasts, market structure and international macroeconomic policy

My dissertation studies foreign exchange market and international macroeconomic policy issues. Chapter 1---"Under Prediction of Foreign Exchange Rate Forecasts: Evidence from Survey Data"---tries to detect the patterns of forecast bias in a professional survey data set and provide some plausible explanations. Two patterns are found: (1) the systematic bias frequently appears as under-prediction; (2) the under-prediction is more severe in the dollar depreciation periods. The fist pattern is explained by forecasters' misperception of permanent and transitory shocks in the exchange rate process and the second pattern is explained by asymmetric loss functions of the forecasters. By taking into account of the bias caused by the asymmetric loss the conventional tests can yield better results for rational expectations.;Chapter 2---"A Noise Trading Model in Foreign Exchange Markets"---uses market microstructure to explain exchange rate deviations and excess volatility compared to underlying macroeconomic aggregates. The model assumes two types of traders in the economy: rational traders in the traditional rational expectations sense and noise traders who have a misperception of signals from fundamentals and those from pure noise. The interactions between the two groups of traders cause exchange rate to deviate from equilibrium values and show excess volatility compared to underlying fundamentals. The paper also estimates the noise trader ratios consistent with the excess returns and volatility observed and finds evidence of time varying noise trader ratios and possible trend chasing behavior of noise traders.;Chapter 3---"Evaluating IMF's programs in the 1990s: the importance of taking explicit account of stoppages"---addresses some empirical issues in evaluating international macroeconomic policy. The major task is to evaluate whether Fund-supported programs during the 1990s have strengthened three key macroeconomic variables: inflation, the budget position and growth. The paper documents the importance of distinguishing between completed programs and those that terminated prematurely because they have significantly different impacts on these targets. While stopped programs raise inflation and the budget deficit, and lower growth relative to periods without a program, completed programs are marginally associated with increased growth three years after the termination of the program.