An Extension of Capital Based Macroeconomic Model and 100 Percent Reserve System, the Free Banking System and BFH System: A Comparison among Latvia, Lithuania, Kazakhstan, and Kyrgyzstan

Abstract

This study extends the capital-based macroeconomic theory to include international capital flow thus extending it to an open economy and analyze it in the context of the BFH system, Free banking system and 100 per cent reserve ratio. In all these, it was noticed that interest rate would barely change even though the possibility of interest rate changes was not ruled out completely. A test of these systems was conducted on Latvia, Lithuanian, Kazakhstan and Kyrgyzstan and was successful. However, it must be noted that these are just proposition as these systems are not in place at the moment. In furtherance to this, past and present monetary system used by the countries exhibited similarities to these systems, even though difference could largely be seen.