Imperfect capital mobility
Imperfect capital mobility is an economics term . Capital mobility describes how flexible capital is in an open economy . This mobility can be restricted, especially between at home and abroad. There is imperfect capital mobility when it is not possible to transfer capital into any form of investment at any time without delay and costs . If, on the other hand, there is the possibility of unrestricted transfer, then economics speaks of complete capital mobility .
The degree of capital mobility has an influence on the adjustment processes that lead to an overall economic equilibrium .
causes
- Capital controls (statutory provisions), d. H. Measures to regulate the flow of capital in and out of a country
- political risks, e.g. B. War / civil unrest, withdrawal of rights of disposal, embargo measures
- different tax laws
- Transaction costs, d. H. Costs that arise through the use of the market in connection with the transaction of rights of disposal (e.g. purchase, sale)
consequences
As a result of these influencing factors, the interest rates in the different countries are different, because domestic and foreign securities are viewed as imperfect substitutes . This means that domestic and foreign securities cannot only be assessed according to their return , since they differ greatly from one another in terms of their risks, for example.
Relation to the Mundell-Fleming model
Capital mobility is a building block of the Mundell-Fleming model . As an extension of the IS-LM model , this model describes an economy in its relations with other countries. The existing IS-LM curves are supplemented by the so-called ZZ curve, which means that open economies can now also be described. This additional curve shows all combinations of interest and income that result in a balanced balance of payments . The degree of capital mobility has a great influence on the shape of this curve.
Effect on the ZZ curve
The ZZ curve has a positive slope with imperfect capital mobility, as can be clearly seen in the graph. Assume that the domestic income increases, starting from the balance of payments equilibrium A, to Y1. As a result, the demand for imports rises because the home country increasingly demands foreign goods. As a result, the balance of payments falls into a deficit at point B if the domestic interest rate level r0 remains unchanged . In order to maintain the balance of payments equilibrium, interest rates must also rise. This induces an additional capital import because foreign investors are now increasingly shifting their capital into domestic assets in order to benefit from the higher interest rate. The deficit in the current account is thus compensated in point C by this additional capital import. All points on the ZZ curve represent an external balance, since the balance of payments is balanced at these points.
In the case of complete capital mobility, the ZZ curve runs parallel to the abscissa (national income Y), and in the absence of capital mobility parallel to the ordinate (interest rate r).
Macroeconomic equilibrium with imperfect capital mobility
Based on the Mundell-Fleming model, there is an overall economic equilibrium only when the ZZ curve intersects with the IS and LM curves at a common point. In the following consideration, a distinction must be made between the existence of fixed and flexible exchange rates , which have a decisive influence on the type of adjustment processes.
Fixed exchange rates
Expansive fiscal policy
As a result of an expansive fiscal policy (state policy of discrimination) with imperfect capital mobility, the interest rate and macroeconomic income rise because the public purse only demands domestic goods. This increase leads to a surplus in the balance of payments . In order to avoid a subsequent appreciation of the domestic currency, the central bank has to buy up foreign currencies until a new macroeconomic equilibrium is reached.
Expansive monetary policy
An expansive monetary policy measure leads to higher macroeconomic income and lower interest rates in the short term , which leads to a balance of payments deficit. In the event of imperfect capital mobility, the central bank can try to lower the interest rate permanently and thereby stabilize its own economy at a higher level of production. To do this, she has to buy up foreign currency with the money she has created herself in each period .
Flexible exchange rates
Expansive fiscal policy
With an expansive fiscal policy at flexible exchange rates, the level of interest rates and macroeconomic income rise. This expansion creates a surplus in the balance of payments, which causes the domestic currency to appreciate. Although this revaluation reduces export demand and imports are stimulated, it cannot fully compensate for the expansionary fiscal policy impulse through the indirect effect of imperfect capital mobility.
Expansive monetary policy
An expansionary monetary policy will increase the level of interest rates and overall economic income. However, this leads to a deficit in the balance of payments and thus to a devaluation of the domestic currency. A new macroeconomic equilibrium arises with a higher equilibrium income .
Individual evidence
- ↑ cf. Exenberger, Andreas (2001), The Mundell-Fleming Model , Archived Copy ( Memento of the original from March 5, 2007 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.
- ↑ cf. Wohltmann, Hans-Werner: Basic features of the macroeconomic theory , 3rd edition, Munich, 2000, p. 277
- ^ Based on Bender, Dieter / Berg, Hartmut et al .: Vahlen's Compendium of Economic Theory and Economic Policy , Volume 1, 8th Edition, Munich, 2003, p. 172
Bender, Dieter / Berg, Hartmut / Gabisch, Günther et al .: Vahlen's Compendium of Economic Theory and Economic Policy , Volume 1, 8th Edition, Munich, 2003
literature
- Dieter Bender, Hartmut Berg, Günter Gabisch, Heinz Grossekettler, Karl-Hans Hartwig, Lothar Hübl , Wolfgang Kerber, Volker Nienhaus, Jürgen Siebke, Heinz-Dieter Smeets, Jörg Thieme, Uwe Vollmer: Vahlen's Compendium of Economic Theory and Economic Policy , Volume 1, 8th edition, Munich, 2003, ISBN 3-8006-2895-3
- Oliver Blanchard, Gerhard Illing: Macroeconomics , 4th edition, Munich, 2006, ISBN 3-8273-7209-7
- Wolfgang Cezanne: Grundzüge der Macroeconomics , 7th edition, Munich, 1998, ISBN 3-486-24933-9
- Klaus Rittenbruch: Macroeconomics , 11th edition, Munich, 2000, ISBN 3-486-25486-3
- Hans-Werner Wohltmann: Fundamentals of the macroeconomic theory , 3rd edition, Munich, 2000, ISBN 3-486-25385-9