This article focuses on the possible role of capital flows in explaining exchange rate movements. Some commentators have suggested that a substantial increase in capital flows into the USA could have accounted for the recent appreciation of the US dollar. This could imply that capital inflows have increased in response to a rise in the rate of return on capital, which in turn has reflected the structural increase in US productivity seen in recent years. The article finds evidence to suggest that this may explain part of the recent dollar appreciation, but unsurprisingly it does not provide a full explanation.
Published on
29 August 2001
Press release