| This dissertation provides new theoretical and empirical evidence to examine three factors often cited as causes of business cycle fluctuations. The first factor is monetary policy; the second is financial structures and crony capitalism; and the third is external shocks, such as European integration.; The first paper contains a theoretical and empirical study of sacrifice ratios (costs of using monetary policy to reduce inflation) when disinflation has long-lived effects on output or unemployment. New methods are developed to measure sacrifice ratios, and I find that sacrifice ratios that take account of long-lived effects are larger than sacrifice ratios calculated using the “standard method” of Ball (1994). The “standard method” has a larger downward bias for countries with larger long-lived effects.; The second paper is about the relationship between corruption, economic volatility, and economic growth. The theoretical part of the paper develops a simple model of corruption which assumes that government officials have the power to allocate government loans to firms, and that in order to get these loans the firms must pay a bribe to the official who procures the loan. The firm then uses the loan to invest in a risky business venture; if the venture is successful the loan is repaid and the firm keeps the excess proceeds, but if the venture is unsuccessful the government bails the firm out by forgiving the loan. Thus, the firm plays a game of “heads I win, tails the taxpayer loses.” The model provides intuitive implications for the relationship between corruption, risk, volatility, and growth. The second part of the paper examines empirical evidence on the relationship between corruption, volatility, and growth.; In the third paper, I use a standard “gravity” model to analyze the separate effects of exchange rate volatility and economic integration, such as membership in the European Union (EU) and participation in the European Monetary System (EMS), on foreign direct investment (FDI). European integration is found to have a positive effect on intra-EU FDI, even after controlling for the endogenous nature of the exchange rate regime. |
