This thesis is composed of three papers, each of which makes a distinct contribution to the study of the political economy of monetary policy. The first paper reassesses our empirical understanding of central bank independence (CBI) and its relationship with economic performance. To overcome flaws in existing indices commonly used to test the economic impact of CBI, I propose a Bayesian item-response approach to the measurement of crossnational CBI levels. After generating a new set of CBI scores I present a simulation extrapolation procedure enabling researchers to properly account for measurement error when using these scores in subsequent regressions. Using these methods to replicate a prominent existing study yields strong empirical evidence for a conditional economic impact of CBI. The second paper examines whether politicians use central bank appointments to induce electoral monetary policy cycles. An item-response model is used to measure the monetary policy preferences of appointees to the Bank of England's Monetary Policy Committee (MPC) based on interest rate voting records. Comparing the preferences of new appointees with their predecessors and studying movements in the median MPC ideal point over time, there has not been a straightforward electoral cycle in MPC appointments. Nevertheless, central bank appointments are important to UK monetary policy, since they have clearly shifted the median MPC ideal point. The third paper conducts a uniquely clean test for partisan central bank appointments by examining the National Bank of Poland (NBP), where we can observe the interest rate voting behaviour of different central bankers directly appointed by different partisan political actors. A novel statistical model of interest rate voting is derived and estimated, yielding monetary policy preference estimates for each appointee. In line with a partisan appointments hypothesis, parties with a more right-wing economic ideology tend to appoint central bankers with more restrictive monetary policy preferences.

The thesis is concerned with the dynamics of inflation and their effect on production, using the example of the Polish reconstruction process after World War I. In 1918, Poland had to be re-established as a state after 123 years of foreign rule as well as reconstructed due to severe destruction experienced during the war. Nevertheless, the reconstruction process was extremely rapid, and the thesis argues that it was inflation which provided the means to build up the state. Inflation redistributed wealth within the society and imposed a high savings quota on the economy. The printing press inflation carried the economy through to hyperinflation. The positive effects of the process already explain in part why inflation could last so long and why the economy went all the way through to hyperinflation. The thesis then argues that stabilisation was a political problem and was only achieved once the inflationary process ceased to create winners and losers. The positive business climate began to deteriorate when traders no longer used past inflation as an indicator for price setting, but instead used changes in the exchange rate. However, inflation reappeared shortly after fiscal reform, due to the inevitable credit requirements of Polish industry. Inflation had eroded savings and distorted the economy: this was the major short-coming of this peculiar way of mobilising the country's resources. Consequently, a credit inflation emerged still in 1924 as industry tried to adjust to market requirements in the post-inflationary crisis. Stabilisation was only finally achieved when the economy moved out of recession in 1926. Lastly, the thesis sheds new light on the generalisation about the European inflationary experiences of the 1920s. It introduces a distinction between exogenously and endogenously imposed inflation, which suggests a more specific definition of the transition into hyperinflation as well as of the exact requirements for stabilisation. It also reduces these exceptional economic occurrences to reparations, on the one hand, and reconstruction, on the other.

The aim of this thesis is to reappraise the European Community's progress towards Economic and Monetary Union (EMU) and to set out the lessons which can be derived from this experience and from economic and political theory with regard to the kind of strategy which must be followed to achieve EMU in Europe. It compares the three monetary systems, Bretton Woods, the Snake and the EMS, which account for the development of European monetary relations in the post-war period and tries to explore the parallels and their respective strengths and weaknesses, to draw conclusions as to the conditions which are necessary for the successful operation of an adjustable-peg type of exchange rate system and to assess the chances of such a system to achieve full and permanent EMU in the Community. It looks into the economic and the political factors which account for the successes and failures so far, their relevance today, as well as some of the interconnections that exist between EMU and integration in other fields. The thesis concludes that the EEC has as yet failed to make the decisive break towards monetary union because the full implications of EMU and the commitment necessary to achieve it have not been understood or accepted by Europe's national governments. The co-ordination approach to EMU, which has underpinned the Community's efforts in this direction from the early 1960s to the recent Delors proposals has been an inappropriate one for the task. The best way to achieve EMU in the Community, especially given the dramatic developments in Eastern Europe, is through the creation of a European parallel currency which would depoliticise monetary policy and would allow EMU to be implemented at a pace dictated by Europe's need for it, rather than by the twists and turns of national politics. Finally, the firm belief is stated that true EMU can only be realised within the framework of a federal Europe.

This thesis studies monetary policy in a dynamic general equilibrium framework with nominal price rigidities. It analyses monetary policy in a non-linear environment and explores issues concerning optimal monetary policy. The introductory chapter sets out the motivation of the thesis and puts it into the framework of the existing literature. Chapter 2 provides a New Keynesian framework to study the interaction among oil price volatility, firms' pricing behaviour and monetary policy. We show that when oil is difficult to substitute in production, firms find optimal to charge higher relative prices as a premium in compensation for the risk that oil price volatility generates on their marginal costs. Chapter 3 uses the model laid out chapter 2 to investigate how monetary policy should react to oil shocks. The main result is oil price shocks generate a trade-off between inflation and output stabilisation when oil has low substitutability in production. Therefore it becomes optimal to the monetary authority to react partially to oil shocks and some inflation is desirable. In chapter 4 we extend a New Keynesian model considering preferences that exhibit intertemporal non-homotheticity. We show that under this framework the intertemporal elasticity of substitution becomes state dependent, which induces asymmetric shifts in aggregate demand in response to monetary policy shocks In chapter 5 we extend the New Keynesian Monetary Policy literature relaxing the assumption that decisions are taken by a single policymaker, considering instead a Monetary Policy Committee (MPC) whose members have different preferences between output and inflation stabilisation. We show that under this framework, the interest rate behaves non-linearly upon the lagged interest rate and expected inflation.

Economists disagree about the role of the financial sector in economic growth. My thesis contributes to this discussion. I show that better financial systems do promote productivity growth and that limited access to external finance interacts with product market competition in determining corporate investment. The first chapter "The Effect of Financial Development on Corporate Growth in the EU Single Market" compares within-industry growth rates of similar EU 'single-market' firms facing financial systems of different depth and institutional quality as of 'single-market' inception. Moving from the least to the most developed financial market within the EU boosts firms' annual value-added growth by about three percentage points. Our results also suggest that the growth gap due to initially under-developed financial systems wais closed by 2003. In the second chapter "Which Firms Benefit More from Financial Development." we test whether more developed financial systems foster corporate growth through tackling market frictions proxied by firm size and age. Our main finding is that more developed financial systems are able to overcome the relative opaqueness of younger firms. We also find that freshly incorporated firms in less financially developed countries have unusually high shares of equity capital in total assets. The two chapters provide evidence that limited access to external finance affects corporate structures and hinders economic growth. In the last chapter "The Effect of Credit Rationing on the Shape of the Competition-Innovation Relationship" I study how financial constraints affect innovation activity. The novel theoretical results derive from an analysis of the interaction between the incentive effect of competition on innovation and the effect competition has on the degree of credit rationing. I find that the negative effect of financial constraints on firm- and aggregate-level R&D investment is most pronounced at both high and low levels of competition. These predictions are supported by empirical evidence.

China's opening-up policies have led to impressive economic growth, and its financial reforms are critical for further integrating the Chinese market with the world economy. For a considerable time, the PBC (People's Bank of China) has reaffirmed its objectives of increasing the flexibility of the RMB exchange rate and relaxing capital controls. However, the research on these financial reforms is still very limited. Our dissertation aims to examine the macroeconomic effects of relaxing the degree of capital control and changing the exchange rate regime, and provides some policy implications for China's financial reforms. in the future. By developing our theoretical models we identify the role of capital controls on protecting China's fixed exchange rate regime, investigate the different effects of capital controls and changing the exchange rate regime on China's monetary policy, fiscal policy and the nominal wage, and also creatively reveal how China's appreciation pressure and deflation are related to the FDI inflow. Our theoretically comparative analysis and research on the optimal degree of capital control are relevant to the PBC's process of deepening its financial reforms.

This study investigated the impact of the exchange rate regime as well as monetary union on businesses in West African countries based on two cases: Cote d’Ivoire and Ghana. Explicitly, the main hypothesis covers Ivorian and Ghanaian firms’ responses to monetary union and exchange rate regime. Two sets of questionnaires needed one in French for Ivorian firms and the other one in English for companies in Ghana. 250 questionnaires had been sent across both countries, Cote d’Ivoire and Ghana. 57 Ivorian companies responded while only 43 Ghanaian were available to fill the questionnaire in. This represents a total response rate of 40 percent, which is appropriate, efficient and adequate for this research study. Mostly, the empirical results based on the primary information and supported with secondary data, strongly confirmed all of the research hypotheses. The study found that being member of the CFA zone with a pegged currency to the Euro has helped expand Cote d’Ivoire’s trade with the European Union in comparison with Ghana. The trade statistics in chapter 5 sections 5.3 of the thesis shows evidence of high trade flows from Cote d’Ivoire to the European Union as well as the Rest of the World. That trade expansion has helped Cote d’Ivoire’s growth despite its instability due to the military and political upraising. Exports played a vital role in the development of African countries, especially in Cote d’Ivoire. During the period 1973-2005, exports represent on average 39.9 percent of the Ivorian GDP and imports of goods and services 35.9 percent. While Ghana’s exports represent only 20 percent of its GDP and its imports of goods and services 27.2 percent for the same period. Again, the questionnaire-survey shows that overwhelmingly, all firms in both Cote d’Ivoire and Ghana agreed on issues related to the benefit of a monetary union and trade with the European Union with a strong passion on the benefit of operating in a fixed exchange rate regime. Therefore, they all supported the hypothesis that membership of a monetary union is beneficial to member states. At the microeconomic level, a monetary union has to be a strong combination of competitiveness and solidarity by taking into account modernisation of social policies. Also, it has to be based on growth or output, higher employment and higher productivity. Finally, a monetary union brings small and medium size enterprises more choices and business opportunities, which will be stronger and more competitive. Large corporations enjoy the eradication of cross-border operations and competition. Again, wealth is created at the microeconomic level through the ability for firms to produce valuable goods and services using efficient methods.

This thesis studies how monetary policy should be conducted in emerging economies where the domestic currency has been partially replaced by a foreign currency, a phenomenon called 'dollarisation'. The central question is how different forms of dollarisation affect both the transmission mechanism and the goals of the central bank. A general overview and the motivation of these topics are discussed in the first and second chapters. The third chapter, 'Optimal Monetary Policy and Endogenous Price Dollarisation', shows that having two units of account may be optimal for economies with large sector specific productivity shocks when prices are sticky. In this case, optimal monetary policy implies a certain degree of exchange rate smoothing. In the fourth chapter, 'Monetary Policy and Currency Substitution' we use a fully micro-founded general equilibrium model where currency substitution is endogenously determined to show how currency substitution can make inflation stabilisation more costly, thus inducing a higher degree of aggregate volatility. We also show that currency substitution does not affect the central banks capability to determine inflation and that in this case exchange rate smoothing is not optimal. The effect of income distribution on price dollarisation is studied in the fifth chapter. This chapter shows that income inequality can generate an upper boundary for price dollarization In the final chapter, 'Dollarisation Persistence and Individual Heterogeneity', we study how the limited capability to process financial information of participants in the dollar deposit market can induce very persistent degrees of financial dollarisation. We further provide empirical evidence supporting our claim.

This research is constructed to address the issue of structure management for colossal foreign exchange reserves holders, such as China and other emerging economies. Contrary to the discussion of optimal quantity on the reserve level, structure management considers the ideal applications of the national wealth, specifically the compositions in the reserves' financial investments. Two perspectives are considered for the safety and liquidity tranche of the foreign reserves, and another one for the return tranche. The thwo perspectives are further developed into three chapters of this thesis and they form a comprehensive set of analyses for the structure management. First, the optimal currency composition for huge foreign reserves in the safety and liquidity tranche is investigated. The asymmetry fat-tails and complex dependence structure in distributions of currency returns are examined for their vital role in the portfolio risk appraisal. In a D-vine copula approach, it is shown that under the disappointment aversion effect, the central bank in our model can achieve sizeable gains in economic value by switching from the mean-variance to copula modelling. It is also found that this approach will lead to an optimal currency composition that allows China to have more space for international currency diversification, while maintaining the leading position of the US dollar in the currency shares of China’s reserves. Next, the strategic asset allocation for China’s foreign reserves in the same safety tranche is studied using a risk-based approach. Four aspects of the risk management are investigated: investment universe, dependence structure, allocation strategies under risk minimization and trade-off between risks and returns. A regime-switching copula model is developed to investigate the dynamic dependence between assets. The optimal allocation is derived following two strategies: risk minimization and trade-off between risk and returns in utility maximization with disappointment avoidance. If the central bank focuses solely on risk minimization, the asymmetries in the asset return dependence encourage the flight to safety. However, if higher risks are allowed in exchange for higher returns, even if the exchange is very conservative, the asymmetries would discourage the flight to safety. Therefore, we suggest that China should mitigate its flight to safety after 2008 and increase holdings of short-term bank deposits, long-term treasury bonds and euro bonds. Finally, the strategic asset allocation problem for China's Sovereign Wealth Fund, the China Investment Corporation, is examined. This is considered to be the return tranche of China's foreign reserves. Bearing the responsibility to pursue higher returns for China's huge volume of foreign exchange reserves, the China Investment Corporation is endowed with a capable funding position. However, its emphasis on safety is still considered more serious than that of other institutional investors. A new method combining the merits of the shrinkage estimation, vine-copula structure, and Black-Litterman model, is proposed and tested to satisfy the revealed investment objectives. Empirical analysis suggests that there is more emphasis on emerging market economies rather than advanced economies when diversifying in fixed-income securities; whereas that emphasis is reversed on the equities side. In addition, using the commodity ETFs to represent the significance of gold in the portfolio, it is discovered that gold is a formidable competitor to the investment in equities.

This thesis is an empirical assessment of the factors that have been advanced as determinant of a currency crisis. Our focus is largely on Thailand, Malaysia, South Korea and Indonesia. A crisis is said to occur when market pressure (MP) rises to a crisis level, arising from the nominal exchange rate depreciation and loss in international reserves. The expected values of the macroeconomic fundamentals that determine MP are determined by the market's experience of its past realized value and its change at the end of the current period. The third generation currency crisis model explains MP for South Korea, Thailand and Indonesia. We extend the third generation model to include financial development and non-performing loans. Financial development has partly been blamed for the recent crisis in 1997. Financial development can induce positive effects by stimulating economic development and efficiency, and therefore increase resilience to shocks. However, financial deregulation measures are likely to be destabilizing and adverse without the support of a sound prudential regulatory framework. The findings for the influence of financial development are mixed. We also compare the determinants of a crisis in an Asian crisis economy with a comparator country, Taiwan, which has been a largely crisis free economy. The comparator study is based on the balance sheet approach of the third generation currency crisis model, which generalizes the third generation model by including financial development and NPLs. Indonesia is the only one chosen for the "comparator" study due to the availability of the data on NPLs (the same data were unavailable for the other countries); it was the most severely affected economy during the 1997-98 crisis. The diverse outcomes of Indonesia and Taiwan to the speculative attacks in 1997-98 are attributable to their levels of development. The heterogeneity in all these countries removes any advantage from pooled estimations.