where is the current account and is net exports. That is, the current account is viewed as consisting solely of imports and exports.
where is the foreign interest rate, is the exogenous component of financial capital flows, is the interest-sensitive component of capital flows, and the derivative of the function is the degree of capital mobility (the effect of differences between domestic and foreign interest rates upon capital flows KA). This derivative is positive if there is any capital mobility (since a higher relative domestic interest rate makes funds more prone to flow into the country), and it is infinitely positive if there is perfect capital mobility.
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