Presented To

Department of Statistics

The purpose of this research is to study the uncertainty of a country from a newrnperspective. Besides, we also further our study into the determinants of the uncertainty.rnThis study consists of data from sample 20 countries both developed and developingrncountries from 2000 to 2015, using quarterly data for exchange rate while annual datarnfor the independent variables. The reason we used quarterly data for exchange rate isrnthat we will be composing our own exchange rate uncertainty index (EUI) using thernquarterly data. Then, we applied the pooled OLS, Fixed Effect Model (FEM) andrnRandom Effect Model (REM) to analyze the significance of the determinant of EUIrnbased on the panel data. In overall, we found that global factors are significant to EUIrnwhereas domestic factors are insignificant except the country’s trade factor. To the bestrnextend of our knowledge, we found that most of the previous researchers have studyrnthe exchange rate using the volatility. So, we intend to establish a new study based onrnthe skewness of exchange rate among developed and developing countries.
Copyright Page II
Declaration - III
Acknowledgements IV
Table of Contents - V
List of Tables VIII
List of Figures IX
List of Abbreviations X
List of Appendices XII
Abstract - XIII
Chapter 1: Introduction - 1
10 Introduction - 1
11 Research Background 2
12 Problem Statement - 4
13 Research Objectives - 6
131 General Objective 6
132 Specific Objectives - 6
14 Research Questions - 6
15 Hypotheses of the Study - 6
16 Significance of the Study - 7
17 Chapter Layout 7
18 Conclusion 8
Chapter 2: Literature Review - 9
20 Introduction - 9
Theory underlying the model - 10
Does Global Factors Matter? - 11
Or is it Influenced by Domestic Factors? - 12
22 Gap to be filled 16
Chapter 3: Methodology 18
30 Introduction - 18
31 Model Specification 18
311 Interaction between VIX and KAOPEN - 19
32 Data Collection Method - 20
321 Data Processing 21
322 Data Description 21
33 Empirical Methodology - 23
331 Composition of Exchange Rate Uncertainty Index 23
332 Independent Variables Data Processing 24
333 Pooled Ordinary Least Square (POLS) 25
334 Fixed Effects Model (FEM) 27
335 Random Effects Model (REM) - 30
34 Model Selection - 31
341 Redundant Fixed Effects- Likelihood Ration 31
342 Omitted Random Effects - Lagrange Multiplier
 (Breusch-Pagan LM-test) - 31
343 Correlated Random Effects (Hausman Test) 32
35 Conclusion - 32
Chapter 4: Data Analysis 33
40 Introduction - 33
41 Central Tendencies Measurement of Constructs 33
42 What can we observe from the POLS table? - 39
421 Which model can fit the best to our study? - 42
43 Interpretation of the Model - 45
44 Conclusion - 46
Chapter 5: Discussion, Conclusions and Implication 47
50 Introduction - 47
51 Major Findings 47
How global factor affect the EUI? - 47
Or the EUI will be affected domestically? - 48
Why EUI will have different impact on developed and developing countries? 48
52 Policy Implication - 49
53 Limitation of Study 50
531 Omission of relevant variables - 50
532 Limited time frame - 51
533 Inclusive of irrelevant variables 51
54 Recommendation for future research 52
55 Conclusion - 52
References - 53
Appendices - 59

Table 31: Sources of data independent variable - 20
Table 32: Description of data - 22
Table 41: Descriptive data 33
Table 42: List of countries 35
Table 43a: Exchange Rate Uncertainty Index - 37
Table 43b: Exchange Rate Uncertainty Index - 38
Table 44: Testing of relationship of independent variables and dependent variables - 41
Table 45: Summary Result of POLS, FEM and REM - 44

Figure 21: Relationships between exchange rate, domestic and global factors 10
Figure 31: Steps of data processing - 21
Figure 41: Exchange rate uncertainty index 34

ARDL Autoregressive Distributed Lag
BP-LM Breusch Pagan Lagrange Multiplier
CBOE Chicago Board Options Exchange
CNBC Consumer News and Business Channel
DCC Dynamic Conditional Correlation
EMS European Monetary System
EPU Economic Policy Uncertainty
EUI Exchange Rate Uncertainty Index
FEM Fixed Effect Model
GARCH Generalized Autoregressive Conditional Heteroscedasticity
GDP Gross Domestic Production
GFCF Gross Fixed Capital Formation
INF Inflation
KAOPEN Capital Account Openness
LSDV Least Squares Dummy Variable
POLS Pooled Ordinary Least Square
PPP Purchasing Power Parity
R&D Research and Development
REER Real Effective Exchange Rate
REM Random Effect Model
U Unemployment
VIX Volatility Index

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