Three Essays on International Capital Flows, Domestic Monetary Processes, and External Markets

210 p.Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1987.This study consists of three essays that examine some of the macroeconomic consequences that stem from international monetary interdependence and external markets.In the first essay, the formulation of money supply processes in a small open economy with fixed exchange rates is examined. In particular, it analyzes the determination of domestic interest rates, domestic money stock and bank credit. The analysis suggests that, even in the case of perfect capital mobility, offsetting capital flows and vanishing interest rate responses cannot occur simultaneously.In the second essay, the same analysis is expanded to the case of a "pseudo" exchange rate union. More specifically, it examines the determination of the union's credit market interest rate, common exchange rate and monetary aggregates, as well as the distribution of the union's international reserves among the participating nations. In addition, the Eurodollar market is incorporated into the analysis, and it is shown to lead to closer financial integration.The third essay examines the role of external markets with respect to exchange rate determination. Using a simple dynamic macroeconomic model, it is shown that in the short-run the existence of external markets causes the exchange rate to overshoot its long-run equilibrium. In addition, the implications of the analysis for the external deposit multiplier is also examined. In particular, it is shown that, in contrast to previous studies, the short-run value of the multiplier may be greater than one.U of I OnlyRestricted to the U of I community idenfinitely during batch ingest of legacy ETD