The implications of international capital mobility on U.S. monetary policy during the 1990 recession.

• Main Author: Ngoh, Ndeme S
• Format: Others
• Published: DigitalCommons@Robert W. Woodruff Library, Atlanta University Center 1995
• Online Access: http://digitalcommons.auctr.edu/dissertations/3817; http://digitalcommons.auctr.edu/cgi/viewcontent.cgi?article=5340&context=dissertations

This study examines the impact of international capital mobility on the effectiveness of U.S. monetary policy. While its primary purpose is to examine the effects of capital movements in the 1990-1992 recessionary period, the general framework and estimation covers the period from the mid 1970’s when international capital movements into the U.S. started increasing significantly. This study argues that when there was little capital movements into the U.S., (closed economy), monetary policy was very effective. In fact, the Fed projections were essentially met. But when international capital mobility increased due to a highly integrated world economy (globalization), a combination of factors began to influence the effectiveness of monetary policy, constraining its pursuance of domestic objectives. The 1990 recession was an example where the dividing line between domestic macro management and international monetary economics has become more blurred. Where capital mobility affects the workings of the Fed’s actions. The analysis presented here identifies that even where policy actions are capable of altering the level of economic activity domestically, the ability to do so may be severely constraining and as such takes a longer time in an interdependent world.