International Capital Flows: Two Extensions of the MFTobin Model

Abstract

Over the last decade, the unprecedented increase in the internal and external imbalances of two of the largest economies in the world, the USA and China, has raised serious concerns about the stability of the world economy. Nevertheless, a correction of these imbalances by means of a significant readjustment concerning the US dollar does not seem very likely in the near future, due to a reluctance of some governments to deal with this issue. In light of this, national wage-price adjustments as well as foreign asset in- and out-flows have become important macroeconomic adjustment mechanisms.