In this dissertation, two questions concerning monetary policy under the Taylor rule have been addressed. The first question is on, under the Taylor rule, whether a central bank should be responsible for both bank supervision and monetary policy or whether the two tasks should be exercised by separate institutions. This is the main focus of Chapter I. The second question is on whether the Taylor rule plays an important role in explaining modern business cycles in the United States. The second question has been covered by Chapter II. The implications of the first chapter can be summarized as follows: (i) it is inevitable for the central bank to have a systematic error in conducting monetary policy when the central bank does not have a bank supervisory role; (ii) without a bank supervisory role, the effectiveness of monetary policy cannot be guaranteed; (iii) because of the existence of conflict of interests, giving a bank supervisory role to the central bank does not guarantee the effectiveness of monetary policy, either; (iv) the way of setting up another government agency, bank regulator, and making the central bank and the regulator cooperate each other does not guarantee the effectiveness of monetary policy because, in this way, the systematic error in conducting monetary policy cannot be eliminated; (v) in the view of social welfare, not in the view of the effectiveness of monetary policy, it is better for the central bank to keep the whole responsibility or at least a partial responsibility on bank supervision. In the second chapter, we examined the effect of a technology shock and a money shock in the context of an RBC model incorporating the Taylor rule as the Fed??s monetary policy. One thing significantly different from other researches on this topic is the way the Taylor rule is introduced in the model. In this chapter, the Taylor rule is introduced by considering the relationship among the Fisher equation, Euler equation and the Taylor rule explicitly in the dynamic system of the relevant RBC model. With this approach, it has been shown that, even in a flexible-price environment, the two major failures in RBC models with money can be resolved. Under the Taylor rule, the correlation between output and inflation appears to be positive and the response of our model economy to a shock is persistent. Furthermore, the possibility of an existing liquidity effect is found. These results imply that the Taylor rule does play a key role in explaining business cycles in the United States.

Global warming is currently a major challenge facing the world. There are widespread ongoing efforts in the form of summits, conferences, etc., to find satisfactory ways of surmounting this challenge. The basic objective of all such efforts can be summarized as conception and formation of protocols to reduce the pace of global carbon levels. Game theory and mechanism design provide a natural modeling tool for capturing the strategic dynamics involved in global warming related problems. This dissertation explores for the first time the use of voting mechanisms in the context of solving the central problems, namely, allocation of emission caps and reduction quotas to strategic emitting agents (countries). The contribution of this dissertation is two-fold. The first contribution is to develop an elegant game theoretic model that accurately captures the strategic interactions among different emitting agents in a global warming setting. This model facilitates a convenient way of exploring a mechanism design approach for solving important allocation problems in the global warming context. The second contribution is to propose and explore a novel approach, based on voting mechanisms, to solve two problems: (1) allocating emission caps and (2) allocating reduction quotas to strategic agents. Our work investigates the use of voting mechanisms that satisfy four desirable properties: (1) non-dictatorship, (2) strategy-proofness, (3) efficiency, and (4) anonymity. In particular, we explore the median selection, maximum order statistic selection, and general Kth order statistic selection voting mechanisms. Our results clearly show that only trivial allocations satisfy all the above properties simultaneously. We next investigate the use of voting mechanisms for the dual problem, namely, allocation of emission reductions to emitting agents. Here, we show that non-trivial allocations are possible, however an important property, individual rationality, might be compromised. The investigations in the thesis bring out certain limitations in applying voting mechanisms that satisfy all the four properties above. Nevertheless, the insights obtained provide valuable guidelines for solving emission allocation related problems in a principled and informed way.