Financial crisis and monetary policy

Written in the midst of the Global Financial Crisis, the goal of this dissertation is to investigate causes of financial crises in general in order to provide empirical evidence of the driving forces of various crises types. Specifically, this thesis analyses the most common types of financial crises in detail: currency, banking and sovereign debt crises. There are two major parts in this thesis: The first part contains the empirical study on the effect of tight monetary policy on the exchange rate in the aftermath of a currency crisis. The second part contains two empirical chapters on the interrelations between currency, banking, and sovereign debt crises. The first study of the second part focuses on the analysis of the twin – banking and currency – crises and whether these crises types contribute to the likelihood of each other. The second study of this part is the analysis of the likelihood of sovereign debt crises and triple – currency, banking and sovereign debt – crises, and an assessment on which crises types provide information of the likelihood of others. In general, this dissertation has important conclusions and policy implications not only for the academia, but also for the policy makers in understanding the causes, relations and the effects of the policy actions on financial crises.