Two essays in international finance: 1. Dollarization hysteresis. 2. Interbank foreign exchange dynamics in high-frequency data.

摘要

This dissertation consists of two independent essays on current topics in international monetary economics. The areas of currency substitution and foreign exchange market structure form the background for analyzing specific issues of contention on which there exists a clear void of thorough theoretical and empirical understanding in the literature.;The first essay entitled "Dollarization Hysteresis and the Role of Network Externalities" investigates inertia arising from foreign currency acceptability. Standard credibility-based models of currency substitution have proven to be inadequate in explaining the persistence of dollarization experienced by several high-inflation countries in Latin America. This essay advances the literature by identifying networking effects as a key determinant of observed hysteresis effects. A general equilibrium model is developed in which there exist efficiencies from establishing a network of dollar currency users.;Implications of the model are subsequently tested by employing a unique data set of daily loan recordings from the informal credit market in Bolivia. Econometric analysis shows that dollarization is positively related to various empirical proxies capturing network externality effects. The results also indicate that credible exchange stabilization policy alone is insufficient in achieving a reversal of the dollarization process.;The second essay entitled "Informed Traders, Intervention and Price Leadership: A Deeper View of the Microstructure in the Foreign Exchange Market" is an empirical study of high-frequency exchange rate dynamics in response to exogenous intervention activity. The analysis focuses on the hypothesis that certain commercial banks, by virtue of their broad liquidity base, have an informational advantage over other market participants. Such informational dichotomies are empirically tested around the time of Bundesbank intervention reports in order to discern price leadership tendencies in DM/;The underlying data source comprises highly refined tick-by-tick spot rate quotes and Reuters screen news announcements, collected over a one-year time period. Granger causality tests over closely controlled samples around the time of reported intervention indicate distinct Structural breaks in the interrelationship of exchange rate returns across banks. It is shown that Deutsche Bank exhibits price leadership behavior during non-intervention time periods. However, just prior to reported interventions, bandwagon effects in quoting patterns become evident, which suggest information leakages about central bank activities. These results provide empirical proof that in the very short-run, the foreign exchange market is governed by informational heterogeneities, hence refuting the assumption that trading environments are continuously efficient.