Capital Mobility
Capital Mobility research paper due and don't know how to start it? How about like this?
Capital mobility research papers show that the effectiveness of monetary and fiscal policy with floating exchange rates depends on the mobility of capital. Capital mobility defines the following:
- The followability of capital to move internationally, which depends largely on the government policies that restrict or tax capital inflows or outflows
a. Capital Mobility depends on how much risk the investors of one country associate with the assets of another country
Capital inflow will not have an effect on IS or LM in a fixed exchange rate but may cause a balance of payments surplus. The opposite is true with a fixed exchange rate because a surplus of the BoP will cause an appreciation and a shift on the IS curve to the right. In the case of a floating exchange rate therefore, the capital inflow can lower income and interest rate.
Capital outflow, which is a debit in the balance on capital account, is the real or financial flow of net capital out of a country because of decreased foreign holdings or increased purchases of foreign holdings.
Perfect capital mobility would mean the absence of any restrictions to international capital movements and presents the requirement in equilibrium that interest rates be the same in different countries. For the small country, it can be assumed that fiscal and monetary expansion can play some role in employment and monetary conditions under both flexible and fixed exchange rates.