1. INTERNATIONAL PORTFOLIO CAPITAL FLOWS AND REAL RATES OF INTEREST.
- Author
-
Kreicher, Lawrence L.
- Subjects
PORTFOLIO management (Investments) ,INVESTMENTS ,CAPITAL movements ,INTEREST rates ,FOREIGN exchange rates ,FINANCE - Abstract
The primary objective of the paper is to establish that international portfolio capital flows are sensitive to changes in the international constellation of real interest rates. In calculating those real interest rates, the study emphasizes inflationary expectations operating through exchange rate expectations. The U.S. real rate enters every country's demand for foreign assets equation, consistent with the expectation that most foreign portfolio holdings are dominated by the U.S. liabilities and are correspondingly sensitive to changes in the U.S. real yields. The counterpart to this last observation is the significance of the U.S. real rate in the U.S. equation for liabilities to foreigners. All asset equations include the domestic rate as significant, indicating the sensitivity of domestic investors to the return on domestic assets. The adjustment speeds in the liability equations tend to be higher than those in the asset equations. This observation may reflect subtle difference in the substitution processes being modeled on the asset and liability sides.
- Published
- 1981
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