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Portfolio Balance and the Assignment Problem in an Interdependent World

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  • Enders, Walter
  • Lapan, Harvey

Abstract

Central to the determination of the proper assignment of monetary and fiscal policy is the precise nature of the role of international capital movements. Mundell's choice of assignments was based on his assumption that capital movements represent sustainable flows, whereas recent work in portfolio theory has shown that the demand for assets is a stock demand. Numerous papers have criticized Mundell for his specification of the capital flow equation and, instead, argued that a change in the rate of return on an asset will lead to a permanent change in desired asset stocks which can be accommodated by temporary asset flows.

Suggested Citation

  • Enders, Walter & Lapan, Harvey, 1976. "Portfolio Balance and the Assignment Problem in an Interdependent World," ISU General Staff Papers 197601010800001026, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:197601010800001026
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    References listed on IDEAS

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    1. John E. Floyd, 1972. "Portfolio Equilibrium and the Theory of Capital Movements," NBER Chapters, in: International Mobility and Movement of Capital, pages 91-124, National Bureau of Economic Research, Inc.
    2. Donald J. Mathieson, 1975. "Monetary Policy in an Inside-Money, Open Economy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 89(1), pages 81-102.
    3. Frenkel, Jacob A & Rodriguez, Carlos Alfredo, 1975. "Portfolio Equilibrium and the Balance of Payments: A Monetary Approach," American Economic Review, American Economic Association, vol. 65(4), pages 674-688, September.
    4. Johnson, Harry G., 1972. "The Monetary Approach to Balance-of-Payments Theory," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(2), pages 1555-1572, March.
    5. Aghevli, B. B. & Borts, G. H., 1973. "The stability and equilibrium of the balance of payments under a fixed exchange rate," Journal of International Economics, Elsevier, vol. 3(1), pages 1-20, February.
    6. Robert A. Mundell, 1962. "The Appropriate Use of Monetary and Fiscal Policy for Internal and External Stability," IMF Staff Papers, Palgrave Macmillan, vol. 9(1), pages 70-79, March.
    7. Fritz Machlup & Walter S. Salant & Lorie Tarshis, 1972. "International Mobility and Movement of Capital," NBER Books, National Bureau of Economic Research, Inc, number mach72-1, July.
    8. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
    9. Enders, Walter, 1975. "Portfolio Balance and Balance of Payments Sterilization," ISU General Staff Papers 197510010700001020, Iowa State University, Department of Economics.
    10. Levin, Jay H, 1972. "International Capital Mobility and the Assignment Problem," Oxford Economic Papers, Oxford University Press, vol. 24(1), pages 54-67, March.
    11. Russell S. Boyer, 1975. "Commodity Markets and Bond Markets in a Small, Fixed-Exchange-Rate Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 8(1), pages 1-23, February.
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