Three essays on monetary and international economics
Abstract
This thesis comprises three essays on monetary and international economics. The
first essay studies two issues of countries’ exchange rate regime (ERR) choices: why
countries peg and, if they peg, how they choose their anchor currency. Using spatial analysis, I found that countries are likely to follow the ERR of “neighbouring” countries, and countries’ ERR are jointly determined by network effects and
country-specific factors. The findings indicate that countries may achieve higher
welfare by jointly choosing their ERRs with their major partners through cooperation and negotiation. In the second essay, I am trying to answer the question why
countries target the particular variables they target by studying the determinants of
countries’ monetary policy regimes (MPRs). The study focuses on original OECD
member countries, and I develop a chronology of countries’ de jure MPRs for early
OECD member countries for the post-Bretton Woods period. I also study the determinants of countries’ monetary policy arrangements based on de facto analysis
with Cobham’s (2015) classification as the cross-reference. The results suggest that
economic size, trade openness, financial development and political environment all
have a role in determining the MPR. The third essay studies two main by-products
of financial integration: contagion and risk sharing. I set up a Huggett (1993) type
heterogeneous agent model with different types of countries, and try to fill the gap
in the literature by exploring the impact of financial integration on consumers with
different wealth status. The main findings indicate that lenders and borrowers in
countries with current account surpluses and deficits respond to the financial crisis
asymmetrically. Moreover, the relationship between financial integration and consumption smoothing is not monotonic, indicating that there is a trade-off between
the benefits of international risk sharing and the costs of financial contagion induced
by unexpected negative shocks as observed in recent history.