Three essays in international finance

This dissertation is a collection of three independent essays in international finance, organized in the form of three chapters.;The first chapter analyzes the reasons for developing countries experiencing higher real exchange rate volatility than do developed countries. I explain this volatility discrepancy by appealing to the developing countries' reliance on international trade in primary goods. In particular, I argue that monetary and productivity shocks affect the demand for primary goods and hence affect the real exchange rate and income. By incorporating the primary sector into a New Open Economy Macroeconomics model with producer-currency-pricing similar to Obstfeld and Rogoff (1995), I get higher real exchange rate volatility than a model without the primary sector. This is a closer fit to the observed data.;In the second chapter, I find a positive relationship between the real exchange rate volatility and the international trade in primary goods. I argue that more openness in international trade in primary goods leads to higher real exchange rate volatility in a small open economy model. This relationship is especially evident for developing countries. Exogenous changes in primary goods' prices directly affect households' income level, which in turn affect the relative price of non-traded goods. Since non-traded goods represent a significant share of the consumption basket, the real exchange rate responds to these shocks. Countries that extensively produce and export primary goods experience higher volatility in the real exchange rate.;The third chapter studies the role of public imbalances in the behavior of the US current account. Incorporating the public imbalances into an inter-temporal model of the current account, I estimate and test the model's predictions. I show the predicted values of my model more closely follow the dynamics of the current account when the series for the current account passes the stationarity test. Moreover, estimations show that public imbalances are indeed an important factor in determining the dynamics of the current account.