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International Finance and Open-Economy Macroeconomics pp 385–422Cite as

Capital Movements, Speculation, and Currency Crises

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Abstract

International capital movements have been mentioned several times in previous chapters.. The purpose of the present chapter is to bring these together in a unified picture, and to examine the causes and effects of the main types of capital movements in detail, with particular attention to speculative attacks and currency crises. For convenience the traditional distinction between short-term and long-term movements will be maintained. It should be stressed that for obvious reasons our examination will be made from the point of view of international monetary economics, so that we shall ignore—except for a very brief mention—the important problem of the behaviour of multinational corporations in carrying out direct investment, a problem which more properly belongs to the theory of the firm.

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Notes

  1. 1.

    A portfolio, that is a given allocation of funds among the various assets, is efficient if a greater return can be achieved only by accepting a greater risk (or a lower risk can be obtained only by accepting a lower return).

  2. 2.

    It should be remembered that according to the theory of portfolio selection, the composition of both efficient and optimum portfolios is independent of the stock of wealth, which has the role of a scale variable. In other words, one first determines the composition (i.e., the fractions of total wealth allocated to the various assets) and then the stocks of the various assets themselves, by applying these fractions to the stock of wealth.

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    Giancarlo Gandolfo

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Gandolfo, G. (2016). Capital Movements, Speculation, and Currency Crises. In: International Finance and Open-Economy Macroeconomics. Springer Texts in Business and Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-49862-0_16

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