This dissertation consists of three chapters about international finance, focusing on financial crises. First and second chapters study international capital flows, motivated by the Great Recession. In the last chapter, I turn to European debt crisis and study on fiscal policy in response to sudden spikes of sovereign bond yields. More specifically, gross capital flows, which arise from the changes in international investment positions, experienced a sudden collapse during the Great Recession in the United States and other advanced countries. The first two chapters build an open economy model of portfolio choice with two bonds and two non-tradable sectors. Equilibrium portfolios are long in domestic bonds and short in foreign bonds because the endogenous movements of real exchange rate make this portfolio a good hedge against non-tradable consumption risk. With a calibrated model, I find that the observed fluctuations in gross flows mitigated 4% of consumption drop during the Great Recession in the United States. In the last chapter, I ask how the fiscal policy should be adjusted when the volatility of government bond yield is time varying. I first quantify the stochastic volatility of real government bond yields for Germany, Italy, Spain and Portugal. Then, I propose a small open economy model with stochastic volatility of real interest rates in order to examine the optimal fiscal policy. I find that under high volatility, consumption tax will result in the highest revenue but at the cost of biggest welfare loss compared to the benchmark low volatility. Capital and labor income taxes show similar results but to the lesser amount. Calibrating to Portuguese data, I show that 1 percentage point increase in consumption tax will yield 1.5% less total government revenue and 1.6% more welfare loss in present value terms under the high volatility than the low volatility.