This dissertation explores various aspects of human capital formation during childhood and their economic effects throughout the lifecourse. Chapter 1 investigates how the association between cognitive achievement and self-rated health in middle age differs by race, and attempts to explain these differences. Using data from the NLSY, I find that while whites with higher cognitive achievement scores tend to report substantially better general health, this relationship is far weaker or wholly absent among blacks. Further tests suggest that about 35% of this racial difference can be explained by behavioral decisions during adulthood, and that another portion of the disparity may trace back to prenatal and early childhood experiences. The chapter closes by noting that its results are broadly consistent with explanations of the racial health gap that emphasize entrenched forms of racial discrimination. Chapter 2 documents a novel gene-environment interactions by showing that the income-education association varies greatly across groups of children with different versions of a specific gene, monoamine-oxidase A (MAOA), which impacts neurotransmitter activity. For children with one MAOA variant, increases in household income have the expected positive association with education. For children with another variant, who comprise over half of the population, this relationship is much weaker. These results hold when the interactive effects are identified using genetic variation between full biological siblings, which genetic principles assert is as good as randomly assigned. Chapter 3 investigates the role of discrimination, broadly defined, in generating racial differences in home environments. To do so, I study the trends of a widely used index of the home environment (the HOME score) in a sample of mothers who were born between 1957 and 1964, and who therefore grew up in a period of rapidly declining racial discrimination in the US South. The chapter documents that HOME scores increased dramatically across these birth cohorts among Southern African American mothers, but did not increase at all among African Americans outside of the South or among Southern whites. I propose that convergence may have been due to shifts in parenting norms that were engendered by the fundamental social and economic changes occurring in the South over this period.

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Economists have long been aware that international financial markets are characterized by the widespread use of a few key currencies to which many other currencies are formally or informally pegged. Yet little effort has been made either to explain these phenomena of key currencies and currency blocs, or to understand their implications for exchange rate behavior and policy independence in open economies. This dissertation attempts to fill this gap in the literature, arguing that key currencies play a critical role in structuring international portfolio behavior, exchange rate movements, and the effectiveness of macroeconomic policy. The first essay, "Exchange Rates, Interest Rates and Key Currencies" presents data on the bloc-like behavior of currencies the 1980s and tests a monetary model of exchange rate behavior for ten bilateral exchange rates, providing evidence for the centrality of the dollar-mark and dollar-yen axes in coordinating exchange rate behavior. "The Underpinnings of International Currency Use" analyzes the microeconomic rationales that prompt key currency use. Arguing that international currencies will be held in proportion to the multinational industrial and banking activity of the issuing country, this essay develops and tests a panel data set of international currency usage. We find compelling empirical evidence for the relationship between portfolio composition and international industrial preeminence. The final essay, "An Open-Economy Macroeconomic Model with Key Currencies and Currency Blocs", incorporates the evidence of prior essays into an open-economy macroeconomic model. By explicitly formalizing the existence of key currencies, the bloc-like behavior exchange rates, and the centrality of multinational preeminence we obtain results that diverge sharply from previous treatments. The analysis suggests that, with extensive capital mobility, the scope for independent macroeconomic policy is asymmetric, with small countries facing stronger and key countries weaker constraints on independent macroeconomic policy than earlier models had predicted.

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