This dissertation consists of essays that study exchange rate pass-through, China’s de facto exchange rate regime, and China’s capital controls. The first essay studies exchange rate pass-through (ERPT) by using a set of data from ten countries including four advanced economies and six Asian emerging markets. The price indices used in this essay include consumer price, producer price, import price and export price indices. While most literature only include the import price index, this essay also puts emphasis on the export price index. It investigates the asymmetry in the ERPT between depreciation and appreciation of domestic currency by using a non-linear OLS model; meanwhile, the short-run and long-run effects of ERPT are also compared with each other. It also detects possible structural change in the ERPT and finds most structural change points are around the Great Recession and Asia financial crisis. Finally, a VAR model is developed to detect the impulse responses of prices to exchange rate shock. The second essay is about China’s exchange rate regime. It has changed a lot since the 2005 reform. It is interesting and important to investigate China’s de facto exchange rate regime with the most recent data. This essay follows Frankel and Wei’s (2008) method, by applying both the basic model and new model with the exchange market pressure (EMP) variable to currency basket for the Chinese yuan exchange rate. I select the US dollar, the Euro, the British pound, the Japanese yen, the Canadian dollar, the Australian dollar and the Russian ruble as component currencies of the basket, based on free floaters, GDP and trade volume. I also add results from a VAR model, considering the endogeneity issue, and the results are consistent with those of OLS. I find the weight of the US dollar declines dramatically and the variation of the Chinese yuan becomes much larger after 2015. This implies that China has been transferring its exchange rate regime from dollar pegged to free floating. The third essay investigates the effectiveness of China’s capital controls. In recent years, after 2014, China’s foreign reserves declined dramatically, from 4 trillion US dollars to 3 trillion US dollars. There was a huge amount of capital outflows from China during 2015 to 2016. This phenomenon lets us reconsider the question: Are China’s capital controls still effective? I will use five methods to measure the effectiveness of China’s capital controls, including de jure indicators, saving-investment correlation test, covered interest rate parity, real interest rate differentials and Edwards-Kahn model. The de jure indicators I use are from Fernández et al. (2016) and Chinn and Ito (2008). I compare China with the US, the UK and Japan in the saving-investment correlation test, and with the Eurozone and Japan in covered interest rate parity, real interest rate differentials and Edwards-Kahn model. Various results indicate that China’s capital controls are still effective.

The present thesis analyzes the application of capital controls and their impact on the economy in the short and long term. These regulatory measures have gone through many periods and opinions in which they were considered as both positive and negative instrument not only of monetary policy. Global financial crisis of 2008 has again raised a lot of questions dealing with this topic. Capital controls may help ease the acute problems associated with inflows or outflows in the short term but they will not solve the issue of the country's susceptibility to movements of primarily debt capital. Long-term capital closeness (whether in terms of export or import) may causes, inter alia, the excessive accumulation of savings in the domestic closed economy or lack of capital for economic development. Therefore, when applying capital controls it is also necessary to improve the country's institutional quality which proved to be an important determinant of capital flows.

The importance of a currency war and its consequences is nowadays a hot topic of all economies around the world. My master thesis is designed to explain this concept, to introduce the main actors of the currency wars, the ways, in which national economies were and are trying to boost and improve their economic situation and highlight the main tools that are usually used by major powers within currency wars. The practical part is divided into three main sub-chapters that analyze the causes and consequences of currency wars, which we have previously witnessed. Analysis of the currency war I. relates to the years 1921-1936, the currency war II. relates to the period around World War II. and the formation of Bretton Woods system, and finally currency war III. relates to last years, when a superpowers like US, China and EU entered the war as a result of economic recessions of 2007.

Diploma thesis deals with the recovery of the Icelandic economy after the financial crisis that affected the country in 2008. The thesis is divided into four main chapters. The first chapter focuses on theoretical view on the financial crisis and the typology of each crisis. The second chapter describes pre-crisis economic development, triggers and the subsequent collapse of the banking sector. The third chapter deals with the impacts of the crisis on selected economic indicators, evaluation of the assistance provided by International Monetary Fund and outlines the issue of capital controls that were relatively controversial element of the IMF program. The last chapter discusses the question of joining the European Union in relation to the crisis and also describes the major difficult point of negotiation, namely fishing.

Submitted by Rodrigo dos Santos Barbosa (rdsbar@gmail.com) on 2016-06-13T19:54:58Z No. of bitstreams: 1 Tese.pdf: 895418 bytes, checksum: 64d50c7a9b78e9d3f89b6737e052eb58 (MD5) / Approved for entry into archive by Letícia Monteiro de Souza (leticia.dsouza@fgv.br) on 2016-06-13T21:06:35Z (GMT) No. of bitstreams: 1 Tese.pdf: 895418 bytes, checksum: 64d50c7a9b78e9d3f89b6737e052eb58 (MD5) / Made available in DSpace on 2016-06-13T22:04:05Z (GMT). No. of bitstreams: 1 Tese.pdf: 895418 bytes, checksum: 64d50c7a9b78e9d3f89b6737e052eb58 (MD5) Previous issue date: 2016-05-17 / My dissertation focuses on dynamic aspects of coordination processes such as reversibility of early actions, option to delay decisions, and learning of the environment from the observation of other people’s actions. This study proposes the use of tractable dynamic global games where players privately and passively learn about their actions’ true payoffs and are able to adjust early investment decisions to the arrival of new information to investigate the consequences of the presence of liquidity shocks to the performance of a Tobin tax as a policy intended to foster coordination success (chapter 1), and the adequacy of the use of a Tobin tax in order to reduce an economy’s vulnerability to sudden stops (chapter 2). Then, it analyzes players’ incentive to acquire costly information in a sequential decision setting (chapter 3). In chapter 1, a continuum of foreign agents decide whether to enter or not in an investment project. A fraction λ of them are hit by liquidity restrictions in a second period and are forced to withdraw early investment or precluded from investing in the interim period, depending on the actions they chose in the first period. Players not affected by the liquidity shock are able to revise early decisions. Coordination success is increasing in the aggregate investment and decreasing in the aggregate volume of capital exit. Without liquidity shocks, aggregate investment is (in a pivotal contingency) invariant to frictions like a tax on short term capitals. In this case, a Tobin tax always increases success incidence. In the presence of liquidity shocks, this invariance result no longer holds in equilibrium. A Tobin tax becomes harmful to aggregate investment, which may reduces success incidence if the economy does not benefit enough from avoiding capital reversals. It is shown that the Tobin tax that maximizes the ex-ante probability of successfully coordinated investment is decreasing in the liquidity shock. Chapter 2 studies the effects of a Tobin tax in the same setting of the global game model proposed in chapter 1, with the exception that the liquidity shock is considered stochastic, i.e, there is also aggregate uncertainty about the extension of the liquidity restrictions. It identifies conditions under which, in the unique equilibrium of the model with low probability of liquidity shocks but large dry-ups, a Tobin tax is welfare improving, helping agents to coordinate on the good outcome. The model provides a rationale for a Tobin tax on economies that are prone to sudden stops. The optimal Tobin tax tends to be larger when capital reversals are more harmful and when the fraction of agents hit by liquidity shocks is smaller. Chapter 3 focuses on information acquisition in a sequential decision game with payoff complementar- ity and information externality. When information is cheap relatively to players’ incentive to coordinate actions, only the first player chooses to process information; the second player learns about the true payoff distribution from the observation of the first player’s decision and follows her action. Miscoordination requires that both players privately precess information, which tends to happen when it is expensive and the prior knowledge about the distribution of the payoffs has a large variance. / A presente tese concentra-se em aspectos dinâmicos de processos que envolvem coordenação entre agentes em ambientes com interação estratégica. Propomos utilizar os chamados global games para estudar a capacidade de uma Tobin tax elevar a probabilidade de sucesso em um ambiente em que investidores internacionais sujeitos a choques de liquidez precisam coordenar suas decisões de investimento (capítulo 1), e reduzir a vulnerabilidade de uma economia aberta a fluxos internacionais de capitais a sudden stops (capítulo 2). Também, investigamos o problema da aquisição de informação em jogos sequenciais com informação incompleta e complementaridade em ações (capítulo 3). No capítulo 1, agentes estrangeiros decidem se entram ou não em um projeto, cujo sucesso depende em parte da capacidade dos mesmos em coordenarem suas escolhas. Uma fração λ desses investidores é afetada por restrições de liquidez no segundo período do modelo e é forçada a se retirar do projeto ou impedida de entrar, dependendo de suas respectivas escolhas no primeiro período. Agentes não afetados pelo choque de liquidez possuem a opção de reavaliar decisões tomadas no primeiro estágio do jogo. É assumido que a probabilidade de sucesso do projeto de investimento é crescente no volume total de capital que a economia recebe, mas decrescente no volume de capitais que deixa a economia no segundo período. Na ausência de choques de liquidez (λ = 0), o volume de capital que é recebido em um estado pivotal para o sucesso do projeto de investimento independe da existência de um imposto sobre capitais de curto prazo. Como tal imposto sempre desestimula saídas de capitais, uma Tobin tax sempre favorece as chances de sucesso em uma economia em que λ = 0. Contudo, na presença de choques de liquidez, o volume total de investimento que a economia recebe torna-se decrescente em um imposto incidente sobre capitais de curto prazo. Neste caso, uma Tobin tax pode prejudicar as chances do processo de coordenação ser bem sucedido, caso o benefício de reduzir o volume de saída de capitais não seja suficientemente grande. O capítulo 2 estuda os efeitos de uma Tobin tax no mesmo cenário do capítulo 1, porém considera que a extensão da restrição de liquidez a que os agentes podem estar sujeitos é aleatória. Neste modelo, identificamos condições sob as quais uma Tobin tax reduz a probabilidade de se observar um sudden stop e eleva o bem estar no único equilíbrio de uma economia onde a probabilidade de ocorrência de um choque de liquidez é pequena, mas a magnitude de tal choque pode ser significativa. O capítulo final investiga o problema de aquisição de informação em um jogo sequencial com 2 agentes, externalidade informacional e complementaridade em ações. Demonstramos que, quando o custo de aquisição de informação é pequeno relativamente ao incentivo que os agentes possuem para coordenarem suas ações, apenas o primeiro jogador escolhe adquirir novas informações a respeito da distribuição dos payoffs, e o jogador 2 sempre segue a ação escolhida pelo jogador 1. Probabilidade positiva de se observar divergência em ações requer que ambos os jogadores processem informação privadamente, o que tende a ocorrer quando o custo de aquisição de informação é baixo e a distribuição a priori dos payoffs possui variância elevada.

Submitted by Renata Lopes (renatasil82@gmail.com) on 2016-02-12T13:34:36Z No. of bitstreams: 1 liviaduarteoctacainaodeoliveira.pdf: 1284696 bytes, checksum: 162cdf8964ad1e14cc20182f9b7e5e00 (MD5) / Approved for entry into archive by Adriana Oliveira (adriana.oliveira@ufjf.edu.br) on 2016-02-26T12:14:40Z (GMT) No. of bitstreams: 1 liviaduarteoctacainaodeoliveira.pdf: 1284696 bytes, checksum: 162cdf8964ad1e14cc20182f9b7e5e00 (MD5) / Made available in DSpace on 2016-02-26T12:14:40Z (GMT). No. of bitstreams: 1 liviaduarteoctacainaodeoliveira.pdf: 1284696 bytes, checksum: 162cdf8964ad1e14cc20182f9b7e5e00 (MD5) Previous issue date: 2014-03-11 / Os controles de capital foram adotados por muitos países na tentativa de proteger suas economias do capital financeiro. Com o Brasil, não foi diferente. No país, o principal instrumento de controle financeiro adotado foi o Imposto sobre Operações de Crédito, Câmbio e Seguros ou relativas a Títulos e Valores Mobiliários – IOF. A ideia fundamental do imposto era restringir a entrada de capital externo e com isso diminuir possíveis efeitos negativos sobre a economia nacional. No Brasil, havia a preocupação de evitar uma valorização excessiva da taxa de câmbio. Em vista disso, este trabalho se propõe a investigar qual o impacto do IOF sobre a economia brasileira, especificamente analisando o efeito sobre as volatilidades do capital externo aplicado em carteira e da taxa de câmbio. Para isso, são elaborados modelos estruturais que analisam as relações entre as variáveis fundamentais através da metodologia VAR para a média condicional. Em seguida, é testado o efeito do imposto sobre a variância condicional do câmbio e do investimento em carteira, utilizando o método GARCH multivariado. O período de análise data de janeiro de 2000 a dezembro de 2012. Os resultados mostraram que existe um efeito do IOF sobre a volatilidade do investimento em carteira, porém o mesmo não ocorre com a volatilidade cambial. Esta é influenciada pela volatilidade do diferencial de juros e do volume de dólares transacionados no mercado. / Capital controls have been adopted by many countries in attempt to protect their economies from the financial capital. In Brazil, it was no different. There, the main instrument of financial control adopted was Tax on Credit, Exchange and Insurance or relating to Securities - IOF. The fundamental idea of the tax was to restrict the entry of foreign capital and thus reduce possible negative effects on the national economy. There was also a concern to prevent an excessive appreciation of the exchange rate. So, under such panorama, this study aims to investigate the impact of the IOF on the Brazilian economy, specifically analyzing the effect on the volatility of the foreign capital invested in portfolio and exchange rate. For such purpose, structural models are designed to analyze the relationships between key variables through the VAR methodology for the conditional mean; then, the effect of tax rates on the conditional variance of exchange and portfolio investment is tested, using the multivariate GARCH’s method. The sample period is from January 2000 to December 2012. The results showed a significant effect of the IOF on the volatility of portfolio investment, but the same does not happen with the exchange rate volatility, which is influenced by the volatility of the interest rate differential and the dollar amount traded in the market.

Made available in DSpace on 2016-04-26T20:48:55Z (GMT). No. of bitstreams: 1 Adriano Vilela Sampaio.pdf: 791664 bytes, checksum: a1e2f8e1979518f22640b33ffdf362c3 (MD5) Previous issue date: 2009-05-15 / Coordenação de Aperfeiçoamento de Pessoal de Nível Superior / The objective of this work is the study of the Brazilian economic policy autonomy in the context of increasing capital mobility and financial liberalization initiated on the 1990s. In order to accomplish our purpose, it is made a brief presentassesation of the evolution of the international financial system and of the debate between liberalization and capital controls on the theoretical and empirical literature with the purpose of comprehending how the functioning of the international financial system may restrict the economic policy autonomy and whether this restriction is desirable or not. The analysis of econometrical papers that tried to assess the impacts of the Brazilian financial liberalization showed that given the divergences of the results, it is not possible to corroborate the hypothesis that the financial liberalization generated the benefits proclaimed by its defenders. About the works that discussed the economic policy autonomy, the results didn t allow a definitive conclusion. It was made an econometrical exercise to assess the impacts of the financial integration, represented by capital flows, over the economic policy autonomy. The results suggest a loss on the economic policy autonomy in the period jan/1995 dec/1999 and that such loss didn t occur in the period jan/1999 dec/2007, although the capital flows had been relevants on explaining the interest rate / O objetivo deste trabalho é o estudo da autonomia da política econômica brasileira no contexto de crescente mobilidade de capitais e liberalização financeira iniciada a partir dos anos 90. Para tanto, faz-se uma breve apresentação da evolução do sistema financeiro internacional e do debate entre liberalização e controles de capitais na literatura teórica e empírica com o propósito de compreender de que forma o funcionamento do sistema financeiro internacional pode restringir a autonomia de política econômica dos países e se essa restrição é desejável ou não. A análise de trabalhos econométricos que trataram dos impactos da liberalização financeira brasileira mostrou que, dada a divergência dos resultados, não é possível corroborar a hipótese de que a liberalização financeira brasileira trouxe os benefícios apregoados por seus defensores. Em relação aos trabalhos que discutiram a autonomia de política econômica, os resultados não permitiram uma conclusão mais segura. Foi realizado um exercício econométrico para avaliar os impactos da integração financeira, representada pelos fluxos de capitais, sobre a autonomia de política econômica. Os resultados sugerem a perda de autonomia de política econômica no período jan/1995-dez/1998 e que não houve essa perda no período jan/1999-dez/2007 embora os fluxos de capitais tenham se mostrado relevantes na explicação da taxa de juros

This collection of essays examines the topic of macroeconomic stabilisation in an international context, focusing on monetary policy, capital controls and exchange rates. Chapter 1, written in collaboration with Giancarlo Corsetti and Joao Duarte, reconsiders the effects of common monetary policy shocks across countries in the euro area, using a data-rich factor model and identifying shocks with high-frequency surprises around policy announcements. We show that the degree of heterogeneity in the response to shocks, while being low in financial variables and output, is significant in consumption, consumer prices and macro variables related to the labour and housing markets. Mirroring country-specific institutional and market differences, we find that home ownership rates are significantly correlated with the strength of the housing channel in monetary policy transmission. We document a high dispersion in the response to shocks of house prices and rents and show that, similar to responses in the US, these variables tend to move in different directions. In Chapter 2, I build a two-country, two-good model to examine the welfare effects of capital controls, finding that under certain circumstances, a shut-down in asset trade can be a Pareto improvement. Further, I examine the robustness of the result to parameter changes, explore a wider set of policy instruments and confront computational issues in this class of international macroeconomic models. I document that within an empirically relevant parameter span for the trade elasticity, the gains from capital controls might be significantly larger than suggested by previous contributions. Moreover, I establish that a refined form of capital controls in the shape of taxes and tariffs cannot improve upon the outcome under financial autarky. Finally, results show that the conjunction of pruning methods and endogenous discount factors can remove explosive behaviour from this class of models and restore equilibrating properties. In Chapter 3, I use a panel of 20 emerging market currencies to assess whether a model that combines fundamental and non-fundamental exchange rate forecasting approaches can successfully predict risk premia (i.e. currency excess returns) over the short horizon. In doing so, I aim to overcome three main shortcomings of earlier research: i) Sensitivity to the chosen sample period; ii) seemingly arbitrary selection of explanatory variables that differs from currency to currency; and iii) difficulty in interpreting forecasts beyond the numerical signal. Based on a theoretical model of currency risk premia, I use real exchange rate strength combined with indicators for carry, momentum and economic sentiment to homogeneously forecast risk premia across all 20 currencies in the sample at a monthly frequency. In doing so, the model remains largely agnostic about structural choices, keeping arbitrarily imposed restrictions to a minimum. Results from portfolio construction suggest that returns are significant and robust both across currencies as well as over time, with Sharpe Ratios in out-of-sample tests above 0.7.

This thesis presents three essays on the main determinants and regulations of international capital flows. The essays contribute to an ongoing significant debate among scholars and practitioners on what determines international capital flows by examining the following issues: Global liquidity, market sentiment and financial stability indices; Global liquidity and capital flow regulations; and Global governance and gross capital flows dynamics. In the first essay, we explore the main determinants of global liquidity, measured using cross-border claims of banks, and establish the link between a variety of financial stability indices and global liquidity. For a sample of 149 countries between 2000 and 2016, we find that Bloomberg Financial Stability Indices are more powerful in explaining global liquidity than FRED Financial Stress Indices and the Euro Area Systemic Stress Composite Indicator (CISS). Moreover, both market sentiment indices, namely the US Conference Board Leading Economic Index (LEI) and the US IBD/TIPP Economic Optimism Index are economically and statistically significant on cross-border bank flows. The research provides useful insights on what market sentiment and financial stability indices are better to employ for financial markets surveillance and as such practice of investment management. We argue that anyone interested in using financial stability indices as indicators of financial conditions and the level of financial stress would benefit from tracking several indices and not just one. The second essay examines the effectiveness of capital controls and macroprudential policies as ways to manage the volume of international capital flows, controlling for other determinants. The findings show that capital controls imposed on inflows generally prevail over controls imposed on outflows in reducing the magnitude of capital flows. The results are consistent with the pecking order theory on capital flows and are connected with the riskiness of different asset classes. For a sample of 112 countries over 2000 and 2016, we find that FX and/or countercyclical reserve (RR_REV) and general countercyclical capital buffer requirements (CTC), reserve requirement ratios (RR) and concentration limits (CONC) are the most effective macroprudential policies for managing countries' exposures to global liquidity fluctuations. Moreover, progress is being made to reduce the systemic risks created by systemically important financial institutions (SIFIs) using macroprudential policies. The results reflect recent developments in Basel III regulations and shed light on the effective calibration of capital flow regulations to country-specific circumstances. The final essay examines the link between global governance indicators and patterns of gross capital flows, controlling for other determinants. For a sample of 67 countries between 2000 and 2016, we contribute to explain the existence of the Lucas paradox (1990) on "why doesn't capital flow from rich to poor countries" and the Feldstein-Horioka puzzle (1980). The findings show that institutional quality rather than the effect of diminishing returns of capital is a key explanation for the Lucas paradox. Finally, we provide new evidence on the relationship between the multidimensional nature of financial development and gross capital flows. The findings show the importance and predominance of financial institutions versus financial markets in the dissemination of international capital flows across counties.

The main objective of my thesis is to analyze and compare reactions of Iceland and Ireland to financial and economic crisis as well as the aftermath of the crisis and the process of recovery as direct consequence of these reactions. Both states had financial sector couple of times bigger than their GDP before the crisis and after the fall of Lehman Brothers they ran into some serious difficulties. However, states chose very different approaches to deal with a situation. Ireland decided to bailout its banks despite the huge increase in public debt and cost of taxpayers' money. Iceland allowed its banks to default and backed only domestic deposits. In my thesis I also analyze the fact that Ireland is a member of euro area and therefore does not possess independent monetary policy and Iceland has independent floating currency and implications that these facts had during and after the crisis on development of countries. In the last chapter I am analyzing possibilities of future development of economies and potential risks and challenges that lie ahead of them.