Premium
INTEREST‐RATE PARITY AND DIVERGENCE OF VIEWS ON EXCHANGE‐RATE CHANGES: AN UPWARD‐SLOPING SUPPLY CURVE OF FUNDS EVEN FOR A SMALL COUNTRY *
Author(s) -
NG YEWKWANG,
FAUSTEN DIETRICH K.
Publication year - 1993
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/j.1467-8454.1993.tb00063.x
Subject(s) - citation , parity (physics) , divergence (linguistics) , economics , combinatorics , mathematics , library science , philosophy , physics , computer science , linguistics , particle physics
It is generally accepted by economists, given reasonable assumptions on capital mobility, that international asset arbitrage maintains interest parity, and that a ‘small’ country faces a horizontal supply curve of loanable funds (capital). The empirical counterpart of ‘smallness’ is less precise than the analytical abstraction. Many, if not most, countries fall into this category in view of the overwhelmingly large size of the international capital market compared to any particular national financial market, and the relatively small transaction costs of international financial transactions.