Understanding how context shapes economic behavior has received considerable attention in recent years. This thesis contributes to the experimental literature on context dependency in economic decision making. Chapter 1 introduces the thesis providing an overview of the common themes and methods underlying this research. Chapter 2 reports a study that examines the relationship between (un)kind actions and subsequent deception. We study two types of deception: selfish lies that benefit the self and are costly for the counterpart, and spiteful lies that are costly for both players. We find that, in the domain of selfish lies, kind actions are rewarded by honesty, whereas there is no evidence of punishment of unkind actions. Further, we observe that individuals have a moral cost of lying regardless of the level of (un)kindness of the previous interaction. With spiteful lies, we find evidence for negative reciprocity, and no evidence of a moral cost of lying. Taken together, our results show that the moral cost of lying is not fixed, but is context dependent. Chapter 3 reports a series of experiments investigating whether using a foreign instead of one’s native language affects selfish deception in informational asymmetry situations, and tests three proposed mechanisms behind the effect. Our experimental manipulation is the language used to conduct the experiments. We find that deception is language dependent: Native Chinese speakers who speak English as a foreign language lie significantly more in their native language. We show that social norms cannot explain this effect, and are in fact at odds with subjects’ behavior. Using native German speakers who speak English as a foreign language, we find that individuals behave in accordance with the generally expected behavior in the culture associated with the language. Chapter 4 reports an extensive replication exercise inspired by a study conducted by Stewart et al. (2015) demonstrating that shapes of utility and probability weighting functions are context dependent; more specifically, the shape of the functions could be manipulated by adjusting the distributions of outcomes and probabilities on offer. Motivated by this challenge, we conducted a four-level replication inspired by the methodology of Levitt and List (2009), extended to incorporate a meta-analysis. We replicate the SRH effect across multiple experiments involving changes in many design features. Levels 3 and 4 of our replication, however, cast strong doubt on the explanation of the SRH effect proposed by Stewart et al. We consider alternative possible accounts of the SRH effect. Chapter 5 concludes by summarizing the results of chapters 2 to 4, pointing out their limitations and suggesting directions for further research.

This thesis contributes to the study of long-run relationships between financial assets. We develop a methodology for testing the hypothesis of co-bubbling behaviour in two series, employing a variant of the stationarity test of Kwiatkowski et al. (1992) which uses a conditional 'wild' bootsrap scheme to control size. We subsequently use our method to test for the presence of co-bubbles in a series of different markets. We look at commodities such as gold and silver and the housing market. There is a plethora of research on the efficacy of unit root tests for detecting explosive rational asset price bubbles. However, the migration of these bubbles and the possibility of co-bubbling behaviour of two series have seldom been researched. In the second chapter of this thesis we apply our model to the commodities market and find that the prices of gold and silver co-bubble in the period following the financial crisis. In the third chapter we investigate the migration of speculative housing bubbles between UK geographic regions. In the third chapter we analyse the co-bubbling relationship between rental and housing prices. We find that an explosive bubble behaviour in rental prices will lead to a bubble behaviour in house prices. The two series co-bubble over a period of time of around two years.

Many problems that societies face have the character of social dilemmas, in which cooperation benefits the whole society but is costly to the individual. The recent literature in experimental economics has focused on uncovering driving factors of cooperative success in social dilemmas. This thesis contributes to this literature and includes three research studies that investigate the influence of individual cooperative dispositions, societal and cultural differences, as well as institutional differences on human cooperative behaviour. Chapter 1 introduces the research questions, discusses the research methods used, and outlines the substantive contributions of the thesis. Chapter 2 presents an experimental test of a common implicit assumption in the literature, which suggests that only people with a cooperative disposition engage in the punishment of defectors in social dilemmas. The experimental test rejects this assumption and shows that individual cooperativeness is independent of one's propensity to punish. Chapter 3 investigates the channels through which culture and societal differences affect cooperative behaviour. The experimental results show that societal differences in behaviour are mainly driven through differences in beliefs about other people's behaviour. Chapter 4 reports on an experimental comparison of informal and formal sanctioning institutions. These experiments show that informal sanctions like peer pressure are necessary to foster high and stable cooperation levels in the long run. Chapter 5 concludes.

This thesis addresses two different topics in the area of competition policy and innovation. In Chapters 2 and 3, I analyse the efficiency of both national and EU leniency programmes in detecting and destabilising cartels. I use industry-level panel data to track the changes in competition intensity as leniency programmes are implemented. The success of the leniency programme is captured by an increase in competition intensity (as measured by a drop in price-cost margins). I then conduct a novel difference-in-differences DD, and a difference-in-difference-in-differences DDD, where I divide the industries according to their likeliness to form a cartel as well as their likeliness to be susceptible to cross-borders cartels. Results suggest that leniency programmes are effective both at the national and the EU level. As the results in Chapters 2 and 3 suggest that leniency programmes are successful in increasing competition intensity, I propose leniency programme implementation as a novel instrument to study the causal impact of competition intensity on innovation in Chapters 4 and 5. Specifically, I use the exogenous variation in competition intensity resulting from leniency programmes implementation to assess the impact of competition intensity on innovation. I provide two different contributions based on firm-level data in developing countries and industry-level data in developed countries. I consider both innovation inputs (R&D expenditures) and outputs (process and product innovation). The Instrumental Variable estimates of competition intensity on innovation reveal two opposite effects: the “Schumpeterian effect” where competition is associated with lower innovation activity and the “escape-competition effect” where competition is associated with increased innovation activity.

Broadly, the first two chapters analyse two novel sources of economic fluctuations, and the last chapter quantifies how the traditional monetary policy tradeoffs is affected by a mandate to stabilise financial variables. The first chapter focuses on the macroeconomic effects by variations in the range of available goods produced. Previous work that analysed the real effects of financial shocks only considered the effect on the production of existing goods. Firms can also invest into production lines of new goods. A credit contraction reduce investment into new products, leading to lower competition and higher markups. This decreases consumption demand, as well as lowering labour demand and wages, reducing household income. This amplifies the response of consumption to financial shocks (19% more volatile). The DSGE model is able to match the VAR impulse responses on the predicted channels. The second chapter resurrects the question if improved business practices contributed to the Great Moderation. While previous studies only examine inventory management, we analyse the role of supply chain management on enhancing production coordination across firms. VAR counterfactuals suggest that improved business practices have dampened order volatility by 40-50%. We therefore determine that better business practices contributed a significant 20-25% of the Great Moderation. The third chapter shows how a policy of ‘leaning against the wind’ affects the traditional monetary policy tradeoff. An estimated, modified Gertler and Karadi (2011) model is used to compute optimal monetary policy under commitment for a range of central bank objectives. The main findings are that increased regard for financial variables: (a) makes price stability increasingly costly in terms of output stabilisation; (b) raises the cost of output and inflation volatility, in reducing financial volatility; (c) depend crucially on the underlying disturbance, and on the financial variable that policy aims to stabilise.

The aim of the thesis is to contribute to the debate over the past experience of the ERM and the prospect of the creation of EMU, both by throwing new light on issues where no agreement has been reached in the literature and by investigating important areas so far overlooked Methodologically, we will consider existing theories and test for their empirical implications by applying time series econometric techniques; and for the ERM crisis of 1992 we develop our own theoretical model and provide preliminary empirical results on its implications In the first chapter we consider the process of disinflation which Europe and the US experienced in the 1980s and adopt the Hamilton filter for the analysis of inflation differentials for the ERM countries against Germany The results are supportive of the view that the ERM membership helped inflation-prone countries to reduce inflation in the first phase of their commitment to stable exchange rates, but they also show that a sizeable positive differential persisted for Italy In the second chapter we test for the validity of the empirical implication for expected realignments of the model of target zones, proposed by Bertola and Svensson, and show that these are not corroborated by our results. In the third chapter we propose a theoretical model of the ERM crisis of 1992, which focuses on how the attitude of the Bundesbank towards the defence of the weak currencies in the system feeds into market expectations of the sustainability of the System and of future exchange rates The empirical implication of our theoretical model, as for expected devaluations, is considered in details and tested in chapter four, the results seem to be consistent with the model. In chapter five we investigate whether the EU as a whole has the characteristics necessary for a successful currency union and in particular focus on how employment shocks spread in Europe, the results seem to support the call for a two-speed Europe.

This thesis presents a comprehensive set of techniques for solving, simulating, analysing and controlling large scale, nonlinear, econometric models that contain rational expectations of future dated variables. These expectations are generally treated as model consistent, whereby the expectation is set to the deterministic projection of the model. Solutions to such models are distinguished from those of conventional models by the fact that they are not recursive in time. The outcome for the current period depends on the expected outcome for future periods as well as past periods. This property means that all of the basic numerical procedures need to be altered. We consider the following topics: solution algorithms for the two—point boundary value problem; terminal conditions, uniqueness and stability; experimental design and stochastic simulation; model forms, solution modes and historical tracking; control methods including optimal control. We find that suitable procedures allow us to undertake all of the experiments usually conducted with conventional models. Each topic is illustrated by application to three large scale models of the United Kingdom economy which contain rational expectations terms. Only one of these models is constructed following the new-classical paradigm and hence their comparative properties revealed by our experiments are of some interest.

This thesis considers the problem of non-existence of competitive equilibria in exchange economies. When equilibria fail to exist, prices fail to allocate commodities across individuals in such a way that markets clear. This is the most fundamental of all market failures.

By lots of economists and central banks, price stickiness is believed to be the main factor which brings about the non-neutrality of money. Based on the belief, most of the New Keynesian models are developed to feature price stickiness in order to make the real effect of money. Among those, the Calvo pricing has been the most popular framework in featuring the sticky price. This thesis investigates whether the non-neutrality of money is always guaranteed by the Calvo-type price stickiness or not. In particular, the focus lies on the effect of volatility of firms’' optimal prices on the relationship between price stickiness and the non-neutrality of money. Chapter 1 presents the theoretical possibility of the non-relationship between the two phenomenons in such case that repricing firms’' optimal prices are very volatile, and the following two chapters propose more micro-founded endogenous frameworks to deliver the results which support the argument in Chapter 1. It is shown in Chapter 1 that high volatility of reset prices has the same effect as that of lowering the degree of price stickiness and increasing the future discount factor in the standard Calvo framework. Due to the effect, it can be illustrated that the aggregate price level can be flexible even when some firms’ maintain the previous price level if the other repricing firms' prices respond very elastically to monetary shocks. Chapter 2 proposes a model in which repricing firms’ behave as in collusion and exploit the information on aggregate price dynamics by taking the aggregate price as a function of their own price at the process of optimization. It is shown that the colluding firms set much higher prices for monopoly gains against positive monetary shocks, and therefore, the aggregate price level can be very responsive even with price stickiness of the rms. Lastly, Chapter 3 presents the case where firms have no information on other firms' pricing behaviours and have expectations on average reset price with bounded rationality. The model of this chapter demonstrates that the realized level of average reset price of the firms can be much higher than that of the standard model when their expectations are heterogeneous. All the results of the chapters imply that the monetary policy might not be able to have the real effect even with price stickiness if firms’ reset prices show very volatile movements. Therefore, economists and central banks should research more on the volatility of firms' reset prices when analysing monetary policy and also try to find other factors which might have direct relationship with the rigidity of aggregate price, rather than price stickiness which focuses just on individual prices, when developing a monetary model.

This thesis is a collection of studies about the link between individual and group characteristics and economic outcomes. The firstt chapter investigates the link between declared trusting attitudes and trust choices in an infinitely repeated trust game after controlling for subjective beliefs. It is found that intrinsic trust influences the probability of trusting in a trust game. Moreover, intrinsic trust seems to operate through the fact that more trusting individuals are more likely to forgive or offer the bene t of doubt to others and show trust even after a disappointing outcome. The effect of intrinsic trust appears to be independent of the formation of beliefs. The second chapter studies personality trait variation and its implications on society's welfare. Personality is taken to be a type of skill that can be better understood if considered as a distribution rather than a single point. The ABM simulation results reported show that population personality compositions are adaptive on the task (job) distribution. Further simulation results depict the importance for appropriate education to cater for the jobs in the economy. Finally, simulations indicate that precise job match screening is beneficial not only for society's welfare but also for subjective well-being. The third chapter is concerned with how intelligence affects the social outcomes of groups. A systematic study of the link is provided in an experiment where two groups of subjects with different levels of intelligence, but otherwise similar, play a repeated prisoner's dilemma. Initial cooperation rates are similar, but increase in the groups with higher intelligence to reach almost full cooperation, while they decline in the groups with lower intelligence. Cooperation of higher intelligence subjects is payoff sensitive and not automatic: in a treatment with lower continuation probability there is no difference between different intelligence groups.