Euro-Dollars, Capital Mobility and the Forward Exchange Market
Bibliographic Data
| ID | 9726347 |
|---|---|
| Authors | Malcolm Knight (corresponding author) |
| Year | 1977 |
| Volume | 44 |
| Issue | 173 |
| Pages | 1 |
| Publication date | 1977-02-01 |
| Peer Reviewed | Yes |
| Open Access | No |
| Type | ARTICLE |
| Venue | Economica (JOURNAL) |
| Journal identifiers | ISSN: 0013-0427 • E-ISSN: 1468-0335 |
| Publisher | JSTOR (PUBLISHER) |
| DOI | 10.2307/2553545 |
| OpenAlex | W2075422772 |
| Language | EN |
| Citations received | 1 |
| References cited | 4 |
Economists have long recognized that the Euro-dollar market plays an important role in the mechanism by which monetary disturbances are transmitted among countries. Nevertheless, little is known about either the portfolio behaviour that gives rise to the mechanism, or the speed with which monetary changes originating in one country are transmitted internationally. The present study attempts to furnish some tentative answers to these questions. While there is now a growing literature on the subject of Euro-currencies (Black, 1971; Bryant and Hendershott, 1970; Freedman, 1973; Hendershott, 1967; Levin, 1974; Rich, 1972), most studies employ equilibrium models of portfolio selection in which forward exchange premiums are taken as given, thus excluding the problems of disequilibrium adjustment and forward market behaviour which are considered here. Although this paper analyses a single international asset market, the estimation results have broader significance as well. In particular, they bear upon two fundamental questions of international finance: the degree of international capital mobility, and the determinants of the forward exchange rate. Both of these topics have implications for the theory of the balance of payments. In order better to understand the balance of payments adjustment mechanism, it is important to obtain empirical estimates of both the degree of capital mobility and the behaviour of the forward exchange market. Capital mobility has two aspects: the substitutability of assets and the speed of international portfolio adjustment. For capital mobility to be high, assets denominated in different currencies must be close substitutes in the portfolios of the economic agents that transact in international financial markets. In addition, these sectors must be able to adjust their multicurrency portfolios rapidly in response to change. Moreover, the level of the forward exchange rate may depend both on the existence of lagged adjustment and on factors that affect speculators' expectations about the future spot rate. To investigate these questions it is necessary to specify a simultaneous dynamic model of international financial behaviour in which asset-substitution effects, expectations and the time lags of portfolio adjustment can actually be measured empirically. Such a model is constructed and estimated in this paper
Balance of payments · Capital (architecture) · Economics · Exchange rate · Financial economics · Liberian dollar · Monetary economics · Order (exchange) · Portfolio · Economic Policies and Impacts · Finance · Global Financial Crisis and Policies · Monetary Policy and Economic Impact
| Unique citing works | 1 |
|---|---|
| Citations per year | 0,04 |
| Citation span | 1998 - 1998 (1) |
| Citation velocity | historical |
| Highly cited | No |
| Citation types | Neutral: 1 |