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The stabilizing effect of induced net capital inflows on changes in nominal interest rates, without considering the source of exogenous shocks to credit markets, and the stabilizing effect of government borrowing induced net capital inflows are estimated to test the capital inflow hypothesis. Using a flow of funds model, the capital inflow hypothesis is supported with one exception: the case of an infinitely interest rate elastic supply of credit. The estimates made also imply that changes in nominal interest rates are significantly stabilized by net capital inflows.

Interest rates are the primary channel for transmitting changes in national and international macroeconomic policy to the United States farmer. Interest rates affect demand through exchange rates that determine the prices foreigners pay. They affect supply through farmers' production costs that determine the price they need to stay in business. (JHZ)

A study compared estimates of the real rate of return on capital to estimates of the real rate of interest as figured by Fisher equations. The study examined data from 1954 through 1981. The results indicated that the two rates of return have similarities but are different enough that both would need to be required in models that accurately depict adjustments between capital and financial assets markets.

A model was constructed and estimated for the Japanese economy from 1872 to 1937. Although the model is limited in scope due to limited data availability, it is capable of testing the escape from the trap hypothesis of which Japan is a popular candidate. An examination of the basic difference equation in all periods indicated that Japan did escape the trap during the period 1873–74. Care should be taken in evaluating the evidence. Clearly, the trap is not verified within the range of the data. Consequently, what appears to be evidence of an escape from the trap is suspicious. An economy could tend to move away from an unstable equilibrium level of per capita income without moving toward a low level stable equilibrium level of per capita income when the rate of change in per capita income is negative. But the evidence does support a turning point in Japan's efforts to develop. After 1873–74 Japan was able to achieve a sustained rise in per capita income. The results of this study identify an escape from a persistence of backwardness in terms of per capita income regardless of whether or not that escape was one from a low level equilibrium trap. [ABSTRACT FROM AUTHOR]