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Increased Capital Mobility - A Challenge for National Macroeconomic Policies

Author

Listed:
  • Paul De Grauwe

    () (K.U.Leuven, C.E.S., International Economics)

  • Magdalena Polan

    () (K.U.Leuven, C.E.S., International Economics)

Abstract

The increased mobility of capital of the last few decades creates new challenges for the macroeconomic policies of the nation-states. In this paper we analyse some of these challenges. Contrary to what is often alleged, increased capital mobility does not necessarily increase the need for co-ordination of monetary and fiscal policies. The reason is that this increased mobility of capital has led many nations to move towards greater exchange rate flexibility. And the latter reduces the need to co-operate in the monetary field. The effect on the need for fiscal policy co-ordination crucially depends on how spillovers of fiscal policies from one country to the other are changed. To the extent that capital market integration and trade integration go together we do not know how the net spillovers of fiscal policies are affected. Increased capital mobility creates many other challenges. We analyse several of these. We argue that while increased capital mobility puts more pressure on countries to move away form pegged exchange rates towards either more flexibility or more rigidity of the exchange rates, it also increases the temptation to escape this hard choice by reimposing capital controls. We argue, however, that one particular form of capital controls, i.e. the Tobin tax, is unlikely to succeed in giving countries a “Third Way” option.

Suggested Citation

  • Paul De Grauwe & Magdalena Polan, 2000. "Increased Capital Mobility - A Challenge for National Macroeconomic Policies," International Economics Working Papers Series wpie012, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics.
  • Handle: RePEc:kul:kulwps:wpie012
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    File URL: http://www.econ.kuleuven.ac.be/ew/academic/intecon/publications/wpie012.pdf
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    References listed on IDEAS

    as
    1. Pierfederico Asdrubali & Bent E. Sørensen & Oved Yosha, 1996. "Channels of Interstate Risk Sharing: United States 1963–1990," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1081-1110.
    2. Alan M. Taylor, 1994. "Domestic Saving and International Capital Flows Reconsidered," NBER Working Papers 4892, National Bureau of Economic Research, Inc.
    3. Matthew T. Jones & Maurice Obstfeld, 1997. "Saving, Investment, and Gold: A Reassessment of Historical Current Account Data," NBER Working Papers 6103, National Bureau of Economic Research, Inc.
    4. Michael D. Bordo & Barry Eichengreen & Douglas A. Irwin, 1999. "Is Globalization Today Really Different than Globalization a Hunderd Years Ago?," NBER Working Papers 7195, National Bureau of Economic Research, Inc.
    5. Fratianni, Michele & von Hagen, Juergen, 1990. "The European Monetary System ten years after," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 173-241, January.
    6. Alan M. Taylor, 1996. "International Capital Mobility in History: The Saving-Investment Relationship," NBER Working Papers 5743, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    economic integration; globalisation; capital flows; capital controls; Tobin tax;

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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