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Capital Flows: Perfectly and Imperfectly Mobile Capital

In: International Trade and Global Macropolicy

Author

Listed:
  • Farrokh Langdana

    (Rutgers Business School)

  • Peter T. Murphy

Abstract

While most advanced Western countries allow the free movement of overseas capital in and out of their economies, many countries, particularly in the developing world, impose restrictions. In fact, the current dominance of freely floating rates is a relatively new historical development. Significant restrictions on capital mobility have been the norm until the globalization era which began in the 1980s. We apply the BOP equilibrium for Imperfectly Mobile Capital to the ISLM-BOP and examine how the results differ from those attained under Perfectly Mobile Capital. Here we see the applicability of the Keynesian multiplier. We move on to discuss fiscal budget sustainability and the Dornbusch model, which leads us into the history and evolution of the Euro. The current state and future of the Euro are discussed here. We discuss speculative currency attacks and their related phenomena of overshooting. We ask: how are private actors able to drive markets in the fact of powerful central banks? We explore the sources and limits of a central bank’s power.

Suggested Citation

  • Farrokh Langdana & Peter T. Murphy, 2014. "Capital Flows: Perfectly and Imperfectly Mobile Capital," Springer Texts in Business and Economics, in: International Trade and Global Macropolicy, edition 127, chapter 0, pages 291-342, Springer.
    • Handle: RePEc:spr:sptchp:978-1-4614-1635-7_12
    DOI: 10.1007/978-1-4614-1635-7_12
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