Money, finance, and economic development

This dissertation consists of three chapters on three related but different topics in money, finance and economic development. The first chapter concerns the history of money in the United States. In particular, it examines empirically whether and how the First and Second Banks of the United States (1791–1811 and 1816–1836 respectively) had an impact on inflation. It constructs a data set of the Wholesale Price Index in the United States between 1749 and 1890 and applies both non-parametric estimation and intervention time series analysis for the study. The evidence supports the argument that the two Banks played a major role in controlling inflation.; The second chapter focuses on examining the relationship between finance and development. Specifically, the current consensus states that tightening the borrowing constraints in the mortgage markets promotes savings. However, employing a six-period overlapping generations model with endogenous growth and a method of simulation, this paper demonstrates that the above argument is tenable only if consumers do not alter their tenure choices. Consumers do, however, postpone or forsake the purchase of a house under severely restrictive borrowing constraints, causing the savings and growth rates to fall. Therefore, for developing countries with scarce mortgage availability, expanding the mortgage markets to some extent is conducive to savings and growth.; Finally, the third chapter examines the link between money and finance. To be more specific, it discusses the impacts of the European monetary union on the European equity markets. Theoretically, it is ambiguous whether and how exchange rate volatility affects international equity return correlations. Empirically, few attempts have been made to evaluate the effects. Chapter 3 fills the gap using a data set covering the period when the Euro countries experimented with a variety of exchange rate regimes, including the monetary union. Moreover, a variable measuring cross-country difference in industrial specialization is created and employed to correct possible omitted variable bias. In terms of methodology, multivariate GARCH models are constructed and estimated. The results show that both exchange rate volatility and industrial specialization have a significantly negative impact on the international equity return correlations.