Anticipatory capital flows and the behaviour of the dollar

Arnold Kling

No 261, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

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.

Date: 1985
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