International Capital Flows under Full Monetary Equilibrium: An Empirical Analysis / John H. Makin.

By:

Makin, John H

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w0648.Publication details: Cambridge, Mass. National Bureau of Economic Research 1981.Description: 1 online resource: illustrations (black and white)Online resources:

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Abstract: This paper develops a theory of international capital flows based upon a monetary-equilibrium, rational-expectation theory of exchanged rate determination extended to include the official intervention and possible sterilization of its effects upon the monetary base that are part of the post-1973 system of limited flexibility of exchange rates. Capital flows are shown to depend only on the current expectation of a future relative excess money supplies once all arbitrage conditions are imposed along with rationality. Empirical testing reveals that U.S. international capital flows respond with persistent, damped oscillations to growth of relative excess money. This phenomenon is a quantity adjustment corollary of '"overshooting" of exchange rates in response to changes in relative excess money supply. Inclusion of a relative interest rate term along with measures of growth of relative excess money supply results in rejection of the hypothesis that such a variable provides any additional explanatory power regarding behavior of U.S. international capital flows.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w0648 (Browse shelf(Opens below))	Not For Loan

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Previous	nber w0645 The Relative Stability of Money and Credit "Velocities" in the United States: Evidence and Some Speculations /	nber w0646 Multiple Time-Serie3 Models Applied to Panel Data /	nber w0647 Exchange Rate Behavior under Full Monetary Equilibrium: An Empirical Analysis /	nber w0648 International Capital Flows under Full Monetary Equilibrium: An Empirical Analysis /	nber w0649 Dividend Yields and Stock Returns: A Test for Tax Effects /	nber w0650 Some Theoretical Aspects of Base Control /	nber w0651 Consumption Preferences, Asset Demands, and Distribution Effects in International Financial Markets /	Next

March 1981.

This paper develops a theory of international capital flows based upon a monetary-equilibrium, rational-expectation theory of exchanged rate determination extended to include the official intervention and possible sterilization of its effects upon the monetary base that are part of the post-1973 system of limited flexibility of exchange rates. Capital flows are shown to depend only on the current expectation of a future relative excess money supplies once all arbitrage conditions are imposed along with rationality. Empirical testing reveals that U.S. international capital flows respond with persistent, damped oscillations to growth of relative excess money. This phenomenon is a quantity adjustment corollary of '"overshooting" of exchange rates in response to changes in relative excess money supply. Inclusion of a relative interest rate term along with measures of growth of relative excess money supply results in rejection of the hypothesis that such a variable provides any additional explanatory power regarding behavior of U.S. international capital flows.