Capital Mobility and Portfolio Balance

  • Rudiger Dornbusch


In his work on monetary and fiscal policy in the open economy under fixed exchange rates Mundell has demonstrated the role of capital mobility.1 Perfect capital mobility was shown to imply endogeneity of the world distribution of money and the ineffectiveness of monetary policy in a small country. The implications of capital mobility for macroeconomic questions were sufficiently forceful at a highly aggregative level for a detailed formulation of the implied portfolio balance relations to seem redundant. Attempts at monetary policy in individual countries reflect, too, the recognition of a high degree of capital mobility, and it is for this reason that policies have primarily taken the form of regulation of the financial industry, taxation of ownership or attempts at changing the relative yields of relatively non-tradeable securities over which domestic authorities may exert more leverage than over their tradeable counterparts.


Central Bank Capital Mobility Foreign Asset Forward Market Domestic Interest Rate 
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Copyright information

© Graduate School of Business, University of Chicago 1977

Authors and Affiliations

  • Rudiger Dornbusch

There are no affiliations available

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