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A unifying framework for analysing offsetting capital flows and sterilization: Germany and the ERM
Author(s) -
Brissimis Sophocles N.,
Gibson Heather D.,
Tsakalotos Euclid
Publication year - 2002
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.171
Subject(s) - sterilization (economics) , economics , offset (computer science) , german , capital (architecture) , monetary economics , macroeconomics , central bank , monetary policy , computer science , philosophy , geography , archaeology , programming language , linguistics
This paper provides a unifying framework in which identified offset and sterilization equations can be derived and estimated. The theoretical model suggests that, in the case where the central bank cares about both external and internal goals and capital is less than perfectly mobile, there will be some offsetting capital flows and the central bank will sterilize. Several results from the literature are encompassed as special cases. The equations are estimated for the German experience of the 1980s and the results point to active sterilization by the Bundesbank during this period. Copyright © 2002 John Wiley & Sons, Ltd.