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Exchange Rates and Capital Flows

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  • Robin Brooks
  • Hali Edison
  • Manmohan S. Kumar
  • Torsten Sløk
Abstract
This paper explores the ability of portfolio and foreign direct investment flows to track movements in the euro and the yen against the dollar. Net portfolio flows from the euro area into US stocks – possibly reflecting differences in expected productivity growth – track movements in the euro against the dollar closely. Net FDI flows, which capture the recent burst in cross‐border M&A activity, appear less important in tracking movements in the euro‐dollar rate, possibly because many M&A transactions consist of share swaps. Movements in the yen versus the dollar remain more closely tied to conventional variables such as the current account and interest differential.

Suggested Citation

  • Robin Brooks & Hali Edison & Manmohan S. Kumar & Torsten Sløk, 2004. "Exchange Rates and Capital Flows," European Financial Management, European Financial Management Association, vol. 10(3), pages 511-533, September.
    • Handle: RePEc:bla:eufman:v:10:y:2004:i:3:p:511-533
    DOI: 10.1111/j.1354-7798.2004.00261.x
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    References listed on IDEAS

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    1. Hali Edison & Torsten Sløk, 2003. "The impact from changes in stock market valuations on investment: new economy versus old economy," Applied Economics, Taylor & Francis Journals, vol. 35(9), pages 1015-1023.
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