Capital imports, monetary policy and the demand for real assets

Abstract

An adequate explanation of international net capital movements is important for several reasons. In the first place it furnishes information on the determinants and ultimate level of a country's foreign indebtedness. 1 ) Secondly, it is necessary in order to predict changes in exchange reserves in a country, which may be of interest to authorities concerned with the degree of international liquidity. Also, it indicates the degree to which the money stock in a country can be autonomously determined and to which degree domestic monetary policy will be negated by induced foreign capital flows. Finally, it may highlight the similarities and differences in the financial markets of various countries.