Capital Flows and Exchange Rates

9 Pages Posted: 29 Jul 2005

See all articles by Andrew John Bailey

Andrew John Bailey

Bank of England; Bank of England - Prudential Regulation Authority

Stephen Millard

Bank of England

Abstract

This article focuses on the possible role of capital flows in explaining exchange rate movements. Some commentators have suggested that a substantial increase in capital flows into the United States could have accounted for the recent appreciation of the US dollar. This could imply that capital inflows have increased in response to a rise in the rate of return on capital, which in turn has reflected the structural increase in US productivity seen in recent years. We find evidence to suggest that this may explain part of the recent dollar appreciation, but unsurprisingly it does not provide a full explanation.

Suggested Citation

Bailey, Andrew John and Millard, Stephen, Capital Flows and Exchange Rates. Bank of England Quarterly Bulletin, Autumn 2001, Available at SSRN: https://ssrn.com/abstract=762264

Andrew John Bailey (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Bank of England - Prudential Regulation Authority

20 Moorgate
London, EC2R 6DA
United Kingdom

Stephen Millard

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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