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Monetary Policy and Capital Inflow

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  • GORDON L. MURRAY

Abstract

Capital inflow has been depicted in the model developed by Pentti Kouri and Michael Porter as being determined exclusively by monetary forces, with GNP entering the equation through its impact on the demand for money. If this is correct, disaggregation of GNP should have little effect on the estimates of response parameters in the model. It is found that replacing GNP by investment and non‐investment spending has a significant effect on the estimates, suggesting that capital inflows have direct purposes which are not well represented in a purely monetary model. An attempt is made to construct a money policy equation as the second part of a simultaneous system depicting the interplay of monetary policy and capital inflow. In spite of claims to the contrary, it is found that simultaneous estimation gives results which differ considerably from those of single‐equation methods.

Suggested Citation

  • Gordon L. Murray, 1978. "Monetary Policy and Capital Inflow," The Economic Record, The Economic Society of Australia, vol. 54(2), pages 271-280, August.
    • Handle: RePEc:bla:ecorec:v:54:y:1978:i:2:p:271-280
    DOI: 10.1111/j.1475-4932.1978.tb00338.x
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    References listed on IDEAS

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    1. Kouri, Pentti J K & Porter, Michael G, 1974. "International Capital Flows and Portfolio Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 443-467, May/June.
    2. P.D. Jonson, 1973. "Reaction Functions and Stabilization Policy in Australia: An Objective Analysis," RBA Research Discussion Papers rdp28, Reserve Bank of Australia.
    3. repec:bla:ecorec:v:50:y:1974:i:129:p:1-20 is not listed on IDEAS
    4. M. G. Porter, 1974. "The Interdependence of Monetary Policy and Capital Flows in Australia," The Economic Record, The Economic Society of Australia, vol. 50(1), pages 1-20, March.
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    1. G.L. Murray, 1980. "Balance of Payments: Monetary or monetarist approach," Economics Discussion / Working Papers 80-01, The University of Western Australia, Department of Economics.
    2. Maurice Obstfeld, 1980. "Sterilization and Offsetting Capital Movements: Evidence from West Germany, 1960-1970," NBER Working Papers 0494, National Bureau of Economic Research, Inc.
    3. G.L. Murray, 1981. "Analysing the Implications of a Resources Boom," Economics Discussion / Working Papers 81-09, The University of Western Australia, Department of Economics.

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