Exchange Rates and Capital Flows

29 Pages Posted: 6 Feb 2006  

Robin Brooks

International Monetary Fund (IMF) - Financial Studies Division

Hali J. Edison

International Monetary Fund (IMF) - Research Department

Manmohan Kumar

International Monetary Fund (IMF) - Research Department

Torsten Sløk

Deutsche Bank, New York

Date Written: November 2001

Abstract

This paper explores the ability of portfolio and foreign direct investment flows to track movements in the euro and the yen against the dollar. Net portfolio flows from the euro area into U.S. stocks - possibly reflecting differences in expected productivity growth - track movements in the euro against the dollar closely. Net FDI flows, which capture the recent burst in cross-border M&A activity, appear less important in tracking movements in the euro-dollar rate, possibly because many M&A transactions consist of share swaps. Movements in the yen versus the dollar remain more closely tied to such conventional variables as the current account and interest differential.

Keywords: exchange rate models, euro/dollar and yen/dollar exchange rates, capital flows

JEL Classification: F31, F32

Suggested Citation

Brooks, Robin and Edison, Hali J. and Kumar, Manmohan and Sløk, Torsten, Exchange Rates and Capital Flows (November 2001). IMF Working Paper, Vol. , pp. 1-29, 2001. Available at SSRN: https://ssrn.com/abstract=880294

Robin Brooks (Contact Author)

International Monetary Fund (IMF) - Financial Studies Division ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Hali J. Edison

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6946 (Phone)
202-589-6946 (Fax)

Manmohan Kumar

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7771 (Phone)
202-589-7771 (Fax)

Torsten Mikkel Sløk

Deutsche Bank, New York ( email )

60 Wall Street
Mail Stop: NYC60-1815
New York, NY 10005
United States

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