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Net capital outflow is the real interest rate

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The key determinant of net capital outflow is the real interest rate. When the U.S. interest rate is high, owning U.S. assets is more attractive, and U.S. net capital outflow is low. This shows this negative relationship between the interest rate and net capital outflow. A net-capital-outflow curve is the link between the market for loanable funds and the market for foreign-currency exchange. Why is this important? You may want to review material in Chapter 19 dealing with the real equilibrium in an open economy.

Source:

Mankiw, N. G. (2015). Principles of Macroeconomics (7th ed.). Retrieved from The University of Phoenix eBook Collection database.

Reference no: EM131544176

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