Dysfunctional Union

Brendan Brown

Chapter 7 in What Drives Global Capital Flows?, 2006, pp 182-214 from Palgrave Macmillan

Abstract: Abstract Throughout this volume a recurrent theme has been the power of divergences in savings propensities and investment opportunities between countries to drive global capital flows. A key line of inquiry has been how neutral interest rates vary relative to each other (across currency frontiers) and how equilibrium exchange rates shift in response to the power source (international divergences between savings or investment propensities) being turned up or down. Within a monetary union the power source driving capital flows between the member countries and between them (the union as a whole) and the rest of the world is the same (as for the case of sovereign monetary areas). The possibility of virtually riskless arbitrage, however, keeps nominal interest rates (measured with respect to assets of identical credit risk) at identical levels to each other in all member countries (of the monetary union). The analyst of capital flows focuses on how the underlying divergences (in savings propensities and investment opportunities) influence the determination of the neutral interest rate for the whole union and the movement of national price levels relative to each other (within the union).

Keywords: Interest Rate; Real Estate; Real Exchange Rate; Real Interest Rate; Monetary Union (search for similar items in EconPapers)
Date: 2006
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-62729-1_7

Ordering information: This item can be ordered from
http://www.palgrave.com/9780230627291

DOI: 10.1057/9780230627291_7

Access Statistics for this chapter

More chapters in Palgrave Macmillan Books from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().