This dissertation consists of four chapters. The first chapter developed a new warning system for international currency crises. The existing crisis indicators in the literature are essentially static. We examine the relationship between the foreign reserves dynamics and currency crises. It is shown that rapid reserve depletion is a prominent feature before the collapse of the exchange rate system. Our model provides clear warning signals for policy makers to take actions before the reserves has reached a critical value that heralds the arrival of a full-blown crisis. The second chapter employed a competing risk model to investigate the crisis-driven exit and orderly exit from fixed exchange rate regime for the period 1972-2001. It is found that the time spent within a regime is itself a significant determinant of the probability of an exit. Different types of exits exhibit different patterns of duration dependence. Crisis-driven exits have a positive duration dependence pattern while orderly exits show a negative duration dependence pattern, even after controlling for country specific characteristics and unobserved heterogeneity. The Competing Risk model yields several interesting results. It is found that the more open the economy, the lower the likelihood of leaving an exchange rate peg, and that the higher the trade concentration, the lower the probability of an orderly exit. Further, financial openness increases the probability of having an orderly exit. There is also strong evidence that a lower reserve growth rate and the incidence of bank crisis are associated with a higher likelihood of crisis driven exits. The third chapter examines whether the gains from incentive realignment have driven corporations out of the public security market. It is shown that going private transactions are due to the reduction in the diversification gains from the public market. For firms whose managers own most equity and are highly leveraged, they have low incentive gains prior to the public-to-private transaction. Such firms go private because of financial distress and dwindling profitability. These kinds of going-private activities are counter-cyclical. On the other hand, a financially healthy firm with a low managerial ownership has high anticipated incentive gains. The gain from incentive realignment is the dominant factor for these going-private transactions. Such firms go private because of an increase in profitability or an improvement in financial distress. We show that these going-private activities are pro-cyclical. The fourth chapter investigates the sources of economy fluctuations in China since its economic reform in 1978. Under the framework of a standard neoclassical open economy model with time-varying frictions (wedge), we study the relative importance of efficiency, labor, investment and foreign debt wedges on recent business cycles phenomena in China. The business accounting procedure suggests that productivity best explains the behavior of aggregate economic variables in China throughout the 1978-2006 periods. Labor wedge plays a major role in explaining the movement of labor enforcement. Foreign debt wedge and investment wedge primarily affect the composition of output between consumption, investment and trade balance, and have a modest role in explaining the fluctuation of output. Our results imply that the reform on inefficiency factor utilization and labor market rigidity should be a focus of future government policies.
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