| The international economy is a complex system. The study of its components and linkages is required to better understand its workings. In particular, this dissertation examines the behaviour of three central elements of the international economy: (i) capital flows, (ii) the real exchange rate, and (iii) monetary policy.; The first issue studied is which macroeconomic, institutional and financial variables play key roles in explaining a component of capital flows: cross-border Mergers and Acquisitions (M&As). Various econometric specifications are built around the simple "gravity model" commonly used in the trade literature and more recently in the asset trade literature. The standard gravity model results hold, and interestingly, financial variables and other institutional factors play a significant role in explaining M&A flows. Specifically, the size of financial markets, as measured by the stock market capitalization to GDP ratio, has a strong positive association with domestic firms investing abroad.; Second, the impact of trade costs on real exchange rate volatility is examined. |
