Portfolio Balance And Exchange Rate Stability

Walter Enders

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: Much of the ongoing debate concerning the relative advantages of a fixed vs. a flexible exchange rate regime has centered around the stabilizing or destabilizing effects of speculation and the magnitudes of the elasticities of demand for foreign goods and services (1), Using a "small-country" model which implicitly ignored portfolio balance effects, Mundell (1960) added another dimension to the controversy by demonstrating that the stability properties of either type of exchange rate system depend upon the degree of capital mobility. In particu lar, Mundell shows that when capital is perfectly mobile internationally, a fixed exchange rate ensures a direct approach towards equilibrium while a flexible rate can produce a cyclical approach. In contrast, if capital is immobile, a flexible exchange rate ensures a direct approach towards equilibrium while a fixed rate makes a cyclical approach likely.

Date: 1975-03-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://dr.lib.iastate.edu/server/api/core/bitstre ... 4ab3366dad89/content
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

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:isu:genstf:197503010700001005

Access Statistics for this paper

More papers in ISU General Staff Papers from Iowa State University, Department of Economics Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070. Contact information at EDIRC.
Bibliographic data for series maintained by Curtis Balmer ().