Karibzhanov, Iskander2013-07-232013-07-232013-05https://hdl.handle.net/11299/153618University of Minnesota Ph.D. dissertation. May 2013. Major:Economics. Advisor: Timothy J. Kehoe, Fabrizio Perri. 1 computer file (PDF); vi, 53 pages, appendix A.This dissertation consists of three essays. The first essay analyzes International Capital Controls and Financial Crises. This essay provides a theoretical support for a macroprudential regulation of capital flows into emerging markets. We study a model of a production economy where private market participants expand the stock of capital during booms and the price of capital rises, enabling them to take on more credit. During busts, the stock of capital becomes less valuable, and the collateral value declines. This leads to a feedback spiral of declining borrowing capacity, falling asset prices, and fire sales. We attribute collateral constraints to be a driving force behind current account reversals and domestic absorption. The paper analyzes the role for macro-prudential policies to lean against the wind when credit flows into the economy. These policies reduce excessive capital creation in booms, and increase social welfare by mitigating the need for fire sales, asset price decline and associated credit crunch in case of a bust. We assess quantitatively that the optimal tax rate on capital inflows should be 1.5\%. We find that credit crunches have long-lasting detrimental effects on output due to slow recovery of investment. One implication is that the welfare costs of financial crises are particularly large since they stretch over many periods. This suggests that adding investment channel is important for modeling financial amplification effects. In the second essay, I work on estimating term structure of interest rates using bond prices. Central banks have several reasons for extracting information from asset prices. Asset prices may embody more accurate and more up-to-date macroeconomic data than what is currently published or directly available to policy makers. Aberrations in some asset prices may indicate imperfections or manipulations relevant for banking and financial market surveillance. Especially, asset prices will reflect market participants' expectations about the future, which is the focus of this paper.In the third essay, I study a model of sovereign defaults. I introduce fluctuations in trend growth to the model of Mendoza and Yue (QJE 2012), to achieve three objectives: 1) improve the model's fit of debt-to-GDP ratios in the data, 2) account for default spread dynamics in both emerging and developed economies by allowing for differences in trend growth volatility, as measured by Aguiar and Gopinath (JPE 2007), 3) build a state of the art model to match sovereign default dynamics in both emerging and developed economies and to analyze policy alternatives in the current economic environment, like for example, optimal IMF lending policy to sovereign borrowers.en-USCapital controlsFinancial fragilityHot moneyMacro-prudential regulationSerial financial crisesSovereign defaultsThesis or Dissertation