If international capital mobility is high, local monetary policies will be ineffective

International capital mobility is currently very high. For a small or medium-sized country, this normally means that the country's monetary policy will be ineffective: if the country's central bank hikes interest rates, this attracts capital to the country, and the additional liquidity prevents the rate hike from leading to a contraction in credit and therefore to restrictive monetary conditions. We examine the situations of the euro zone and emerging countries (other than China) to see whether this effect of international capital mobility appears. We can clearly see that in both cases, the restrictive monetary policy boosts credit because of capital inflows; an expansionary monetary policy slows credit because of capital outflows. Monetary policies are clearly ineffective because of high international capital mobility.