2. International Capital Flows and Macroeconomic Equilibriums

BW Chp 12

The open economy diagram

Definition of International Rate of Return

International Financial Market Equilibrium diagram

• “Small”- i* is exogenous, it changes for reasons unrelated to domestic conditions.

• When the interest rate parity condition is not satisfied, the domestic interest rate i will adjust.

Equilibrium in the goods market diagram

Equilibrium in the money market diagram

General equilibrium diagram

What must the CB do if domestic currency price or exchange rate starts rising or falling in the fixed exchange rate market?

Money market under fixed exchange rates diagram

Unsterilized and Sterilized Intervention definition

Equilibrium in international capital markets diagram

Mundell-Fleming Model

Demand Shock under Fixed Exchange Rates (Fiscal Expansion) diagram

Demand Shock (Fiscal Expansion) with Capital Mobility Diagram

Demand Shock (Fiscal Expansion) without Capital Mobility Diagram

An International Financial Shock diagram

International Financial Shock: Fixed Exchange Rates diagram

A Devaluation diagram

A Devaluation: Shift in Demand for Goods diagram

Demand disturbance (Fiscal Expansion) with Flexible Exchange Rates and Fixed Prices diagrams

Monetary Policy Shocks under Flexible Exchange Rates diagrams

Monetary Policy Shock: Shift in the TR Curve diagram

Monetary Policy Shock: Shift in the D Curve diagram

Demand Shock Under Flexible Exchange Rates diagram

Mundell-Fleming model with fixed prices: Summary