Essays on imperfections in money and capital markets

The first essay explores the demand for M1, M3 and broad money (BM) and economic uncertainty in Australia over the period 1976:2-2008:4. The results suggest that we have evidence of cointegration between money, economic activity, interest rate and price for the pre-deregulation sub-period. The long-run equilibrium relation is confirmed for post-regulation and for the entire sample once we augment the traditional money demand equation with measure of economic uncertainty. Once we account for uncertainty, the breakdown of the cointegration relationship between real money balance and economic activity disappear and our money demand equation better explain the overshooting of M3 during 1984. Our result has an implication on reopening an important policy question on the viability of framing monetary policy around monetary aggregate.;The second essay investigates the impact of financial liberalization on consumption and GDP growth volatility and assess why such impact may differ across countries. Our result confirms that the initial level of inequality and initial level of financial development help to explain heterogeneity across countries. Overall, after controlling for institutional quality, macroeconomic reform and conflict, our result supports the negative association between financial liberalization and consumption growth volatility.;The third essay presents a two-period model of money-in-the-utility-function to investigate the impact of ant-money laundering policy on crime. Our two-period model reveals that an increase in labor wage in legal sector unambiguously decrease the labor hours allocated for illegal sector. However, the crime-reducing impact of anti-money laundry regulation and the probability of the agent to be caught require both parameters should be above some threshold. This threshold is a function of the marginal rate of substitution of 'dirty' money for consumption and the responsiveness of illegal income to the policy parameter. Therefore, the marginal rate of substitution between 'dirty' money and consumption, and the elasticity of illegal income to the policy parameter are the key in governing the formulation of the anti-money laundry policy.