International Capital Flows and Monetary Policy Spillovers

This dissertation examines the drivers and implications of international capital flows. The overarching motivation is the observation that countries not at the centre of global financial markets are subject to considerable spillovers from centre countries, notably from their monetary policy. I present new empirical evidence on the determinants of the observed patterns of international capital flows and monetary policy spillovers, and study their effect on both financial markets and the real economy. In Chapter 2 I provide evidence on the determinants of a puzzling negative correlation observed between productivity growth and net capital inflows to developing and emerging market economies (EMEs) since 1980. By disaggregating net capital inflows into their gross components, I show that this negative correlation is explained by capital outflows related to purchases of very liquid assets from the fastest growing countries. My results suggest a desire for international portfolio diversification in liquid assets by fast growing countries is driving much of the original puzzle. In the reminder of my dissertation I pivot to study the foreign characteristics that drive international capital flows and monetary policy spillovers, with a particular focus on the role of unconventional monetary policy in the United States (U.S.). In Chapter 3 I show that a significant portion of the heterogeneity in EMEs' asset price adjustment following the quantitative easing operations by the Federal Reserve (the Fed) during 2008-2014 can be explained by the degree of bilateral capital market frictions between these countries and the U.S. This is true even after accounting for capital controls, exchange rate regimes, and domestic monetary policies. Chapter 4, co-authored with Michal Ksawery Popiel, studies unconventional monetary policy in a small open economy, looking specifically at the case of Canada since the global financial crisis. We quantify the effect Canadian unconventional monetary policy shocks had on the real economy, while carefully controlling for and quantifying spillovers from U.S. unconventional monetary policy. Our results indicate that the Bank of Canada's unconventional monetary policy increased Canadian output significantly from 2009-2010, but that spillovers from the Fed's policy were even more important for increasing Canadian output after 2008.

IMPACT OF RNA VIRUSES ON THE REGULATION OF IL-23 IN MOUSE AND HUMAN MODELS OF INFECTION.

Interluekin-23 (IL-23) is a pro-inflammatory cytokine critical to the regulation of innate and adaptive immune responses. The main role for this cytokine is in the proliferation and differentiation of the IL-17 producing CD4 T helper cell, Th17. Virus infection deregulates IL-23 expression and function, but little is known about the mechanism behind this phenomena. Here, I demonstrate a reduction of Toll like receptor (TLR) ligand-induced IL-23 expression in lymphocytic choriomeningitis virus (LCMV)-infected bone marrow-derived dendritic cells (BMDCs), indicating that a function of these cells is disrupted during virus infection. I propose a mechanism of TLR ligand-induced IL-23 expression inhibition upon LCMV infection via the deactivation of p38, AP-1, and NF-κB. Further analysis revealed a direct relationship between LCMV infection with the IL-10 and SOCS3 expression. To understand IL-23 function, I characterized IL-23-induced JAK/STAT signalling pathway and IL-23 receptor expression on human CD4 T cells. My results demonstrate that IL-23 induces activation of p-JAK2, p-Tyk2, p-STAT1, p-STAT3, and p-STAT4 in CD4 T cells. For the first time I show that IL-23 alone induces the expression of its own receptor components, IL-12Rβ1 and IL-23Rα, in CD4 T cells. Blocking JAK2, STAT1, and STAT3 activation with specific inhibitors detrimentally effected expression of IL-23 receptor demonstrating that activation of JAK/STAT signalling is important for IL-23 receptor expression. I also addressed the effect of viral infection on IL-23 function and receptor expression in CD4 T cells using cells isolated from HIV positive individuals. These studies were based on earlier reports that the expression of IL-23 and the IL-23 receptor are impaired during HIV infection. I demonstrate that the phosphorylation of JAK2, STAT1, and STAT3 induced by IL-23, as well as IL-23 receptor expression are deregulated in CD4 T cells isolated from HIV positive individuals. This study has furthered the understanding of how the expression and function of IL-23 is regulated during viral infections.