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Interest Parity, the Degree of Capital Mobility and the Information Contents of the Exchange Rate and the Interest Rate: Clarifications and Extensions

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  • Blackburn, Keith

Abstract

This paper explores the role of the exchange rate and the interest rate as information variables in a small macroeconomic model under conditions of perfect and imperfect capital mobility. It is shown that, despite the intimate relationship between these variables via interest parity, the information content of each is generally different, the nature of this information being crucially dependent upon the degree of capital mobility. Implications are drawn for the dynamic behavior of the exchange rate and prices. An implication of the analysis focuses on the role of policies designed to alter the degree of capital mobility. Copyright 1987 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Blackburn, Keith, 1987. "Interest Parity, the Degree of Capital Mobility and the Information Contents of the Exchange Rate and the Interest Rate: Clarifications and Extensions," The Manchester School of Economic & Social Studies, University of Manchester, vol. 55(1), pages 60-76, March.
    • Handle: RePEc:bla:manch2:v:55:y:1987:i:1:p:60-76
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