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Anticipatory capital flows and the behaviour of the dollar

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  • Arnold Kling

Abstract

In this paper, I argue that the value of the dollar is influenced by the \"state of long-term expectation\" and that market expectations do not appear to embody a return to steady state. I suggest that the recent strength of investment in the United States reflects \"animal spirits\" and those investors appear to expect the investment boom to he sustained indefinitely. Finally, I show how an adverse shift in perceptions concerning the profitability of investment, by altering this state of expectations and thereby affecting international capital flows, conceivably could put upward pressure on interest rates that would outweigh the downward pressure coming from the actual slowdown in investment.

Suggested Citation

  • Arnold Kling, 1985. "Anticipatory capital flows and the behaviour of the dollar," International Finance Discussion Papers 261, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:261
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    References listed on IDEAS

    as
    1. Jeffrey D. Sachs, 1985. "The Dollar and the Policy Mix: 1985," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 117-197.
    2. William H. Branson & Arminio Fraga & Robert A. Johnson, 1985. "Expected fiscal policy and the recession of 1982," International Finance Discussion Papers 272, Board of Governors of the Federal Reserve System (U.S.).
    3. Jeffrey Sachs, 1985. "The Dollar and the Policy Mix: 1985," NBER Working Papers 1636, National Bureau of Economic Research, Inc.
    4. Anonymous, 1962. "International Monetary Fund," International Organization, Cambridge University Press, vol. 16(1), pages 230-231, January.
    5. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    6. Anonymous, 1962. "International Monetary Fund," International Organization, Cambridge University Press, vol. 16(4), pages 876-878, October.
    7. Anonymous, 1962. "International Monetary Fund," International Organization, Cambridge University Press, vol. 16(3), pages 619-631, July.
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    Cited by:

    1. Jeffrey A. Frankel & Kenneth A. Froot, 1986. "The Dollar as Speculative Bubble: A Tale of Fundamentalists and Chartists," NBER Working Papers 1854, National Bureau of Economic Research, Inc.

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