Essays in International Finance

Preceding the global financial crisis, the 1990s witnessed a series of currency crises alongside the formation of the European Union. These events fostered a trend towards market lib-eralization, facilitating the capital flows of different types of assets. many nations adopted floating exchange rates to grant increased autonomy to their Central Banks, consequently al-tering monetary policy regimes. This evolution in exchange rate mechanisms was intricately linked to the expanding global trade and financial markets.
The returns and volatility of these markets became crucial tools for policymakers, not solely in managing international trade but also in forecasting capital flow behaviors within the countries. As a result, exchange rates began to influence not only trade dynamics but also the vulnerability of economies to external shocks from the global international financial markets.
In this thesis, I present three chapters that explore the determinants, behaviors, and consequences of foreign exchange rate fluctuations on the economy. It focuses on interest rate parity deviations, extreme movements, and responses in capital flows. As part of the research, I investigate stablecoins, digital currencies designed to streamline transactions and overcome the volatility constraints of traditional exchange rates. These investigations align closely with the research agendas of International Finance and Financial Economics, offering valuable insights for academics, policymakers, and industry practitioners. The research employs modern econometric methods to analyze the fluctuations of both traditional and electronic currencies, revealing their sensitivity to external and internal factors. It also offers insights for establishing an efficient stabilization mechanism within the context of macroprudential policies.