Essays on Monetary Coordination, Exchange Rate Volatility and Interfirm Networks

This dissertation consists of three independent essays in Macroeconomics. The first essay analyzes monetary coordination between currency areas. It is shown that search frictions can generate the deviations from the law of one price and that each country is tempted to exploit these deviations by inflation. Monetary coordination eliminates the inefficiency caused by inflation. The welfare gains from coordination increase when the two economies become more integrated. In contrast to traditional models, the need for coordination exists even after each country is allowed to directly tax foreign holdings of its currency. The second essay studies the behavior of exchange rates in an environment with search frictions. In contrast to traditional models, even without any nominal rigidity, the model can generate enough volatility of exchange rates found in the data. The changes in the behavior of exchange rates under different regimes are also examined in this essay. The model shows a sharp increase in the volatility of exchange rates when moving from a pegged to a floating exchange regime, while there is no such systematic change in fluctuations of output or consumption. Moreover, the co-movements of output and consumption across countries are higher under a fixed rate regime than under a flexible rate regime. These results are consistent with empirical findings. The final essay focuses on the competition between groups of allied firms. In the essay we propose a model of group fitness and develop an approach to evaluate the fitness of groups and the utility of their member firms. A group has high fitness if member firms have four features: (i) high capacity, (ii) being embedded in dense relationships, (iii) holding complementary resources and (iv) having limited competition and conflict. We illustrate the effectiveness of our model and methodology by applying it to the airline groups between 1997 and 2002. By examining what really happened to the airline groups afterwards, we found that the predictions based on the comparison between the fitness scores of actual groups formed and those of the corresponding population constructed are reasonably accurate, and that the implications based on the ranking of individual firm utility within each group are generally supported.