Part II examines the sources of macroeconomic fluctuations in Taiwan and South Korea. Using two structural VAR models and introducing cointegration restrictions we study the effects of innovations giving domestic and foreign effects (mainly U.S.) on export growth. The empirical evidence shows that changes in real variables have a significant and persistent influence on the variation of the export growth while the monetary disturbances have only short-lived effect. Such a result implies the ineffectiveness of the monetary policy designed to stimulate the long-term export growth. Besides, U.S. disturbances are found to be very important for explaining fluctuations in exports in Taiwan, while they have insignificant and short-run effect on South Korea's exports.

Part III discusses the equality of real interest rates. The issues of concern here relate to a basic mapping out of trends and cycles rather than attempts to model causality directly. These trends and cycles are derived using the Kalman filter and the practice of time varying parameter (TVP). Although our results show no evidence of real interest rate convergence in sample Asian countries, it indicates there is some degree of interdependence because their real interest rates have maintained quite stable relationships since 1986. The study also finds no evidence supporting the German dominant role in EMS. On the contrary, other countries, like U.K. and France are having a very significant convergence of real interest rates.

This dissertation is composed of three parts and its objective is to investigate the interactions of global financial markets in a variety of dimensions. Part I offers an investigation of the sources of trend movements of the economic growth. Some recent advances in the time series analysis, including the cointegration tests, the vector error correction model, and the common stochastic trend approach with impulse response and variance decomposition, are employed to examine the long-run equilibrium relationship regarding the determination of output and relative importance of real shocks, such as real interest rates and term structure, in affecting the real economic activities. The empirical model studied in this paper incorporates most of the arguments in the literature concerning the sources of movements of economic growth. The tests are also conducted to show how government policies, such as spending, investment, money supply, react to changes in the real interest rates. The results that both the foreign interest rate and term structures exert stronger and significant effect on smaller open economy like Taiwan and South Korea imply smaller degree of policy independence for both countries.

In sum, with all the evidence indicating the integration of financial markets, further research and knowledge of international finance will be required to determine the extent to which various factors contribute to ability for the government to enforce the policy independently and the efficiency for the local firms to be insulated from harmful loss.