No Capital Mobility between Union and Rest of the World
As a rule, in this book, we assume that there is perfect capital mobility between the union and the rest of the world. As an exception, in this chapter, we assume that there is no capital mobility between the union and the rest of the world. The case of capital immobility can occur for two reasons. First, if foreign debt of the union exceeds a critical level. And second, if capital controls are introduced to prevent speculative attacks.
KeywordsInterest Rate Monetary Policy Current Account Fiscal Policy Monetary Union
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