Summary
This paper re-examines the relationships between short term capital flows and monetary policy, in the light of a new theoretical approach of the forward exchange market. They contend that the traditional forward exchange market theory is a misleading one as it fails to give all the importance it deserves to the distinction between covered and uncovered exchange transactions and to the actual role of the ‘arbitrageurs.’ As a consequence of this analysis, they demonstrate that the problem of monetary management in an open economy must be dealt with in a way different from what has been usual, and they conclude that monetary policy, central banks' intervention on the foreign exchange market and direct controls on capital movements can still have some efficiency in the struggle against inflation, either of the ‘domestic’ or the ‘imported’ type.
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Coulbois, P., Prissert, P. Forward exchange, short term capital flows and monetary policy. De Economist 122, 283–308 (1974). https://doi.org/10.1007/BF01680112
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DOI: https://doi.org/10.1007/BF01680112