Globalization and Capital Markets

Maurice Obstfeld and Alan M. Taylor

in Globalization in Historical Perspective

Published by University of Chicago Press

Published in print August 2003 | ISBN: 9780226065984
Published online February 2013 | e-ISBN: 9780226065991 | DOI:
Globalization and Capital Markets

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This chapter surveys the development of international capital mobility since the mid-nineteenth century. It documents the long U traced out by the creation of a well-integrated global capital market by 1914, its collapse during the interwar years, and its resurrection since 1970. This description is enhanced by reference to the open-economy “trilemma” faced by policymakers when choosing between capital markets, domestic monetary targets, and exchange rate regimes. The chapter examines a wide array of new evidence, including data on gross asset stocks, interest rate arbitrage, real interest differentials, and equity-return differentials. On all measures examined, the degree of international capital mobility appears to follow this U pattern, being high before World War I, low in the Great Depression, and high today. A commentary is also included at the end of the chapter.

Keywords: international capital mobility; nineteenth century; open-economy trilemma; exchange rates

Chapter.  29147 words.  Illustrated.

Subjects: Economic History

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