1/*! For license information please see 48.414fe717.js.LICENSE.txt */ 2"use strict";(self.webpackChunkexclam_web_app=self.webpackChunkexclam_web_app||[]).push([["48"],{62958:function(e,t,r){r.d(t,{Z:()=>a});let a=(0,r(99991).Z)("Compass",[["path",{d:"m16.24 7.76-1.804 5.411a2 2 0 0 1-1.265 1.265L7.76 16.24l1.804-5.411a2 2 0 0 1 1.265-1.265z",key:"9ktpf1"}],["circle",{cx:"12",cy:"12",r:"10",key:"1mglay"}]])},40792:function(e,t,r){r.d(t,{Z:()=>a});let a=(0,r(99991).Z)("Flame",[["path",{d:"M8.5 14.5A2.5 2.5 0 0 0 11 12c0-1.38-.5-2-1-3-1.072-2.143-.224-4.054 2-6 .5 2.5 2 4.9 4 6.5 2 1.6 3 3.5 3 5.5a7 7 0 1 1-14 0c0-1.153.433-2.294 1-3a2.5 2.5 0 0 0 2.5 2.5z",key:"96xj49"}]])},44812:function(e,t,r){r.d(t,{Z:()=>a});let a=(0,r(99991).Z)("Gauge",[["path",{d:"m12 14 4-4",key:"9kzdfg"}],["path",{d:"M3.34 19a10 10 0 1 1 17.32 0",key:"19p75a"}]])},78216:function(e,t,r){r.d(t,{Z:()=>a});let a=(0,r(99991).Z)("GitBranch",[["line",{x1:"6",x2:"6",y1:"3",y2:"15",key:"17qcm7"}],["circle",{cx:"18",cy:"6",r:"3",key:"1h7g24"}],["circle",{cx:"6",cy:"18",r:"3",key:"fqmcym"}],["path",{d:"M18 9a9 9 0 0 1-9 9",key:"n2h4wq"}]])},65526:function(e,t,r){r.d(t,{Z:()=>a});let a=(0,r(99991).Z)("Repeat2",[["path",{d:"m2 9 3-3 3 3",key:"1ltn5i"}],["path",{d:"M13 18H7a2 2 0 0 1-2-2V6",key:"1r6tfw"}],["path",{d:"m22 15-3 3-3-3",key:"4rnwn2"}],["path",{d:"M11 6h6a2 2 0 0 1 2 2v10",key:"2f72bc"}]])},23766:function(e,t,r){r.d(t,{Z:()=>a});let a=(0,r(99991).Z)("Scale",[["path",{d:"m16 16 3-8 3 8c-.87.65-1.92 1-3 1s-2.13-.35-3-1Z",key:"7g6ntu"}],["path",{d:"m2 16 3-8 3 8c-.87.65-1.92 1-3 1s-2.13-.35-3-1Z",key:"ijws7r"}],["path",{d:"M7 21h10",key:"1b0cd5"}],["path",{d:"M12 3v18",key:"108xh3"}],["path",{d:"M3 7h2c2 0 5-1 7-2 2 1 5 2 7 2h2",key:"3gwbw2"}]])},25205:function(e,t,r){r.d(t,{Z:()=>a});let a=(0,r(99991).Z)("ShieldAlert",[["path",{d:"M20 13c0 5-3.5 7.5-7.66 8.95a1 1 0 0 1-.67-.01C7.5 20.5 4 18 4 13V6a1 1 0 0 1 1-1c2 0 4.5-1.2 6.24-2.72a1.17 1.17 0 0 1 1.52 0C14.51 3.81 17 5 19 5a1 1 0 0 1 1 1z",key:"oel41y"}],["path",{d:"M12 8v4",key:"1got3b"}],["path",{d:"M12 16h.01",key:"1drbdi"}]])},83930:function(e,t,r){r.d(t,{Z:()=>a});let a=(0,r(99991).Z)("Sigma",[["path",{d:"M18 7V5a1 1 0 0 0-1-1H6.5a.5.5 0 0 0-.4.8l4.5 6a2 2 0 0 1 0 2.4l-4.5 6a.5.5 0 0 0 .4.8H17a1 1 0 0 0 1-1v-2",key:"wuwx1p"}]])},24672:function(e,t,r){r.d(t,{Z:()=>a});let a=(0,r(99991).Z)("TrendingDown",[["polyline",{points:"22 17 13.5 8.5 8.5 13.5 2 7",key:"1r2t7k"}],["polyline",{points:"16 17 22 17 22 11",key:"11uiuu"}]])},19858:function(e,t,r){r.d(t,{Z:()=>a});let a=(0,r(99991).Z)("TrendingUp",[["polyline",{points:"22 7 13.5 15.5 8.5 10.5 2 17",key:"126l90"}],["polyline",{points:"16 7 22 7 22 13",key:"kwv8wd"}]])},8809:function(e,t,r){r.d(t,{Z:()=>a});let a=(0,r(99991).Z)("Triangle",[["path",{d:"M13.73 4a2 2 0 0 0-3.46 0l-8 14A2 2 0 0 0 4 21h16a2 2 0 0 0 1.73-3Z",key:"14u9p9"}]])},95231:function(e,t,r){r.d(t,{Z:()=>a});let a=(0,r(99991).Z)("Waves",[["path",{d:"M2 6c.6.5 1.2 1 2.5 1C7 7 7 5 9.5 5c2.6 0 2.4 2 5 2 2.5 0 2.5-2 5-2 1.3 0 1.9.5 2.5 1",key:"knzxuh"}],["path",{d:"M2 12c.6.5 1.2 1 2.5 1 2.5 0 2.5-2 5-2 2.6 0 2.4 2 5 2 2.5 0 2.5-2 5-2 1.3 0 1.9.5 2.5 1",key:"2jd2cc"}],["path",{d:"M2 18c.6.5 1.2 1 2.5 1 2.5 0 2.5-2 5-2 2.6 0 2.4 2 5 2 2.5 0 2.5-2 5-2 1.3 0 1.9.5 2.5 1",key:"rd2r6e"}]])},32676:function(e,t,r){r.r(t),r.d(t,{default:()=>S});var a=r(85893),s=r(67294),i=r(1932),n=r(62958),o=r(78216),l=r(44812),c=r(8809),d=r(95231),m=r(83930),h=r(19858),x=r(24672),u=r(25205),p=r(23766),g=r(40792),f=r(99991);let y=(0,f.Z)("Banknote",[["rect",{width:"20",height:"12",x:"2",y:"6",rx:"2",key:"9lu3g6"}],["circle",{cx:"12",cy:"12",r:"2",key:"1c9p78"}],["path",{d:"M6 12h.01M18 12h.01",key:"113zkx"}]]),b=(0,f.Z)("ArrowUpRight",[["path",{d:"M7 7h10v10",key:"1tivn9"}],["path",{d:"M7 17 17 7",key:"1vkiza"}]]),v=(0,f.Z)("ArrowDownRight",[["path",{d:"m7 7 10 10",key:"1fmybs"}],["path",{d:"M17 7v10H7",key:"6fjiku"}]]);var j=r(65526),w=r(82701),k=r(64611),N=r(75737),F=r(63573),C=r(41885),T=r(27697);let q=k.c.siteOrigin,$=`${q}${T.S}/economic-cycle-hot-money`,M=[{q:'What is a "hot money" flow?',a:"Vigorous, short-term capital that chases nominal interest rate differentials across borders. The empirical fact that carry trades are profitable on average is direct evidence that hot money flows exist and that uncovered interest rate parity does not hold over relevant horizons."},{q:"What is the MundellâFleming trilemma?",a:"A country cannot simultaneously allow unrestricted capital flows, maintain a fixed exchange rate, and pursue an independent monetary policy. It can pick any two corners. China historically chose monetary independence + fixed FX (and restricted capital flows). The US chose monetary independence + capital mobility (and lets FX float). Hong Kong chose fixed FX + capital mobility (and imports US monetary policy via the peg)."},{q:"Why does a higherâinterest rate currency sometimes appreciate and sometimes depreciate?",a:"Because the response to an interest rate differential plays out in three phases (Dornbusch overshooting). Phase 1: the currency jumps and overshoots as capital floods in. Phase 2: it consolidates as investors form expectations of a reversal. Phase 3: it retraces toward equilibrium as asset prices adjust. Depending on when you observe, the higherârate currency may be going either direction."},{q:"How does the business cycle map to capital flows?",a:"In a strong expansion, capital is pulled in by attractive risk-adjusted returns â especially when growth is led by productive investment. In a contraction with falling rates, capital is pushed out toward higher-yielding markets. The yield curve is countercyclical: steepest near the policy-cycle trough, flattest near the peak."},{q:"What is sterilization?",a:'When a central bank intervenes in the FX market by buying or selling its own currency, it changes the level of bank reserves. To offset that effect and keep domestic monetary conditions on course, the central bank sells or buys government securities of equal magnitude in the open market. The FX intervention is "sterilized" from the domestic rate.'},{q:'Why is expansionary monetary policy described as "pushing on a string"?',a:"Restrictive policy reliably slows the economy by raising the cost of credit, but expansionary policy depends on borrowers and lenders being willing to act. Cutting rates to zero does not force anyone to take a loan. So contractions caused by aggressive tightening can be deep, but recoveries induced by aggressive easing are often slow."},{q:"What is the Dornbusch overshooting mechanism?",a:'When relative attractiveness of one currency rises (say, via a rate hike), the exchange rate jumps far enough that it is then expected to depreciate going forward â restoring expected-return equality. The "jump and revert" pattern means the immediate FX move is larger than the long-run equilibrium move, and the difference unwinds in two later phases.'}
2,{q:"Why is the cycle considered the master variable in international macro?",a:"Short- and intermediate-horizon return forecasts are dominated by cycle dynamics: where you are determines what the central bank is doing, which determines the rate differential, which drives capital flows and FX. Long-horizon forecasts are anchored to structural trend growth and current-account balances. So in any allocation decision over the next 1â5 years, the cycle is the single highest-leverage variable."}];function S(){let e=(0,F.C)([{name:"Home",item:`${q}/`},{name:"Financials Visualized",item:`${q}${T.S}`},{name:"Economic cycle & hot money",item:$}]),t=(0,C.R8)({name:"How to reason about hot money flows and international macro",description:"Follow the master chain from business cycle phase, through central bank reaction, to capital flows, exchange rates, and asset prices.",totalTimeMinutes:15,steps:[{name:"Locate the cycle",text:"Identify the current business cycle phase from output gap, inflation, and policy stance."},{name:"Infer the policy reaction",text:"Apply a Taylor-rule reaction function to predict policy rate direction over the cycle."},{name:"Compute the differential",text:"Compare risk-adjusted expected returns across markets using the building-block expected-return identity (nominal short rate + term + credit + equity + liquidity premiums)."},{name:"Trace the capital flow",text:"Capital flows toward the more attractive market; flow vigor scales with the differential and structural inducements."},{name:"Anticipate FX overshoot",text:"Expect an immediate FX jump, a consolidation, and then a retracement as asset prices adjust."},{name:"Map to asset class winners",text:"Translate the chain into expected returns for cash, bonds, equities, and real estate."}]});return(0,a.jsxs)("div",{className:"bg-muted",children:[(0,a.jsx)(N.Z,{title:"Economic Cycle and Hot Money, Visualized | exclam.ai",description:"Interactive international macro: the business cycle, central bank reactions, rate differentials, hot money, Dornbusch overshooting, and the trilemma.",canonical:$,noindex:!0,jsonLd:[e,(0,C.qY)(M),t]}),(0,a.jsxs)("main",{className:"mx-auto max-w-7xl px-4 sm:px-6 lg:px-8 py-10",children:[(0,a.jsxs)("nav",{className:"flex flex-wrap items-center gap-2 text-sm text-muted-foreground","aria-label":"Breadcrumb",children:[(0,a.jsx)("a",{href:"/visuals",className:"hover:text-foreground",children:"Financials Visualized"}),(0,a.jsx)("span",{children:"/"}),(0,a.jsx)("span",{className:"text-foreground",children:"Economic cycle & hot money"})]}),(0,a.jsx)(z,{}),(0,a.jsx)(A,{}),(0,a.jsx)(E,{}),(0,a.jsx)(P,{}),(0,a.jsx)(D,{}),(0,a.jsx)(L,{}),(0,a.jsx)(U,{}),(0,a.jsx)(V,{}),(0,a.jsx)(J,{}),(0,a.jsx)(Q,{}),(0,a.jsx)(G,{}),(0,a.jsx)(K,{})]})]})}function z(){return(0,a.jsxs)("header",{className:"mt-8 grid gap-8 lg:grid-cols-[minmax(0,1fr)_360px] lg:items-end",children:[(0,a.jsxs)("div",{children:[(0,a.jsxs)("div",{className:"inline-flex items-center gap-2 rounded-md border border-brand/40 bg-brand/10 px-3 py-1 text-sm font-semibold text-brand-ink",children:[(0,a.jsx)(n.Z,{className:"size-4"}),"International macro \xb7 interactive"]}),(0,a.jsx)("h1",{className:"mt-5 max-w-4xl text-4xl font-semibold text-foreground md:text-5xl",children:"Economic cycle, capital flows, and hot money"}),(0,a.jsx)("p",{className:"mt-5 max-w-3xl text-lg leading-8 text-muted-foreground",children:"The master variable in international macro is not the equity premium or the term premium â it is the business cycle. Everything else, including hot money, the carry trade, and FX overshooting, is downstream of where you are in the cycle and how the central bank is reacting."}),(0,a.jsxs)("p",{className:"mt-4 max-w-3xl text-base leading-7 text-muted-foreground",children:["This page traces the full chain in plain English, anchors each step to a number, and surfaces the three ideas every macro analyst lives with:"," ",(0,a.jsx)("span",{className:"font-semibold text-foreground",children:"the MundellâFleming trilemma"}),","," ",(0,a.jsx)("span",{className:"font-semibold text-foreground",children:"hot money flows"}),", and"," ",(0,a.jsx)("span",{className:"font-semibold text-foreground",children:"Dornbusch overshooting"}),"."]})]}),(0,a.jsxs)("div",{className:"grid grid-cols-2 gap-3",children:[(0,a.jsx)(Z,{icon:(0,a.jsx)(o.Z,{className:"size-4"}),label:"Chain steps",value:"6"}),(0,a.jsx)(Z,{icon:(0,a.jsx)(l.Z,{className:"size-4"}),label:"Cycle phases",value:"4"}),(0,a.jsx)(Z,{icon:(0,a.jsx)(c.Z,{className:"size-4"}),label:"Trilemma corners",value:"3"}),(0,a.jsx)(Z,{icon:(0,a.jsx)(d.Z,{className:"size-4"}),label:"Overshoot phases",value:"3"})]})]})}function Z(e){let{icon:t,label:r,value:s}=e;return(0,a.jsxs)("div",{className:"rounded-lg border border-border bg-card/80 p-4 shadow-sm",children:[(0,a.jsxs)("div",{className:"flex items-center gap-2 text-brand-ink",children:[t,(0,a.jsx)("span",{className:"text-xs font-semibold uppercase tracking-wide text-muted-foreground",children:r})]}),(0,a.jsx)("div",{className:"mt-2 font-mono text-2xl font-semibold text-foreground",children:s})]})}function A(){let e=[{title:"Business cycle",body:"Output gap, inflation, employment, credit growth define the phase.",tone:"sky"},{title:"Central bank reaction",body:"Taylor-rule style reaction. Cuts in slack, hikes in heat.",tone
2:"blue"},{title:"Real rate differential",body:"Local vs. foreign risk-adjusted returns, decomposed.",tone:"teal"},{title:"Capital flow",body:"Hot money pushes out of low rates, pulls into high.",tone:"rose"},{title:"Exchange rate",body:"Dornbusch overshoot in three phases.",tone:"amber"},{title:"Asset prices",body:"Cash, bonds, equities, real estate respond by phase.",tone:"emerald"}],t={sky:"var(--info-fg)",blue:"var(--chart-1)",teal:"var(--chart-2)",rose:"var(--critical-fg)",amber:"var(--caution-fg)",emerald:"var(--success-fg)"};return(0,a.jsxs)("section",{className:"mt-14",children:[(0,a.jsx)(W,{kicker:"The master chain",title:"Six steps from cycle to asset prices",body:"If you can recite this chain in order, you can reason through any macro scenario. Each step has a name in the literature, a number that quantifies it, and a typical mistake."}),(0,a.jsx)("div",{className:"mt-6 overflow-x-auto rounded-lg border border-border bg-card/80 p-5 shadow-sm",children:(0,a.jsxs)("svg",{viewBox:"0 0 1100 260",className:"h-auto w-full min-w-[820px]",role:"img","aria-label":"The master chain from business cycle to asset prices",children:[(0,a.jsx)("title",{children:"The master chain"}),e.map((r,s)=>{let i=30+178*s,n=i+75;return(0,a.jsxs)("g",{children:[(0,a.jsx)("rect",{x:i,y:60,width:150,height:140,rx:14,fill:t[r.tone],opacity:.18,stroke:t[r.tone],strokeWidth:1.5}),(0,a.jsx)("text",{x:n,y:90,textAnchor:"middle",className:"fill-foreground text-[14px] font-semibold",children:r.title}),(0,a.jsx)("foreignObject",{x:i+10,y:100,width:130,height:90,children:(0,a.jsx)("div",{className:"text-[11px] leading-snug text-muted-foreground",children:r.body})}),s<e.length-1?(0,a.jsxs)("g",{children:[(0,a.jsx)("line",{x1:i+150,y1:130,x2:i+174,y2:130,stroke:"var(--muted-foreground)",strokeWidth:2}),(0,a.jsx)("polygon",{points:`${i+174},130 ${i+168},126 ${i+168},134`,fill:"var(--muted-foreground)"})]}):null,(0,a.jsx)("circle",{cx:n,cy:40,r:14,fill:"var(--card)",stroke:t[r.tone],strokeWidth:2}),(0,a.jsx)("text",{x:n,y:45,textAnchor:"middle",className:"fill-foreground text-[12px] font-bold",children:s+1})]},r.title)})]})}),(0,a.jsxs)("div",{className:"mt-3 grid gap-3 md:grid-cols-2",children:[(0,a.jsx)(B,{tone:"sky",body:"The cycle dominates short- and intermediate-horizon return forecasts. Long-horizon forecasts are anchored to trend growth and structural balances instead."}),(0,a.jsx)(B,{tone:"emerald",body:"The chain runs both directions. If you observe an FX overshoot, you can reason back to a rate differential, back to a policy stance, back to an inferred cycle phase."})]})]})}function W(e){let{kicker:t,title:r,body:s}=e;return(0,a.jsxs)("div",{children:[(0,a.jsx)("div",{className:"text-xs font-semibold uppercase tracking-[0.18em] text-brand-ink",children:t}),(0,a.jsx)("h2",{className:"mt-2 text-3xl font-semibold text-foreground md:text-4xl",children:r}),(0,a.jsx)("p",{className:"mt-3 max-w-3xl text-base leading-7 text-muted-foreground",children:s})]})}function B(e){let{tone:t,body:r}=e;return(0,a.jsx)("div",{className:`rounded-md border px-4 py-3 text-sm leading-6 ${{sky:"border-info/40 bg-info/10 text-info-fg",emerald:"border-success/40 bg-success/10 text-success-fg",amber:"border-caution/40 bg-caution/10 text-caution-fg",rose:"border-critical/40 bg-critical/10 text-critical-fg"}[t]}`,children:r})}function E(){let[e,t]=s.useState(2),[r,i]=s.useState(2),[n,o]=s.useState(2),[l,c]=s.useState(3),[d,p]=s.useState(2.5),g=s.useMemo(()=>e+l+.5*(d-n)+.5*(l-r),[e,l,d,n,r]),f=g-l,y=f<e-.4?"accommodative":f>e+.4?"restrictive":"neutral";return(0,a.jsxs)("section",{className:"mt-14",children:[(0,a.jsx)(W,{kicker:"Step 2 \xb7 Reaction function",title:"The Taylor rule, demystified",body:"The Taylor rule is not a magic formula. It is the central bank's hypothesis about itself, written down. Move the inputs and watch the policy rate. Note that real-world central banks deviate, especially at the zero lower bound."}),(0,a.jsxs)("div",{className:"mt-6 grid gap-6 lg:grid-cols-[420px_minmax(0,1fr)] lg:items-start",children:[(0,a.jsxs)("div",{className:"rounded-lg border border-border bg-card/80 p-5 shadow-sm",children:[(0,a.jsxs)("div",{className:"flex items-center gap-2 text-sm font-semibold text-brand-ink",children:[(0,a.jsx)(m.Z,{className:"size-4"}),"Taylor rule inputs"]}
2),(0,a.jsxs)("div",{className:"mt-5 grid gap-5",children:[(0,a.jsx)(X,{label:"Neutral real rate",value:e,min:-1,max:5,step:.25,display:`${e.toFixed(2)}%`,onChange:t}),(0,a.jsx)(X,{label:"Inflation target",value:r,min:0,max:5,step:.25,display:`${r.toFixed(2)}%`,onChange:i}),(0,a.jsx)(X,{label:"Trend growth",value:n,min:0,max:5,step:.25,display:`${n.toFixed(2)}%`,onChange:o}),(0,a.jsx)(X,{label:"Expected inflation",value:l,min:-2,max:10,step:.25,display:`${l.toFixed(2)}%`,onChange:c}),(0,a.jsx)(X,{label:"Expected growth",value:d,min:-4,max:8,step:.25,display:`${d.toFixed(2)}%`,onChange:p})]})]}),(0,a.jsxs)("div",{className:"grid gap-4",children:[(0,a.jsxs)("div",{className:"rounded-lg border border-border bg-card/80 p-5 shadow-sm",children:[(0,a.jsx)("div",{className:"text-xs font-semibold uppercase tracking-wide text-muted-foreground",children:"Target policy rate"}),(0,a.jsxs)("div",{className:"mt-1 flex flex-wrap items-baseline gap-3",children:[(0,a.jsxs)("div",{className:"font-mono text-4xl font-semibold text-foreground",children:[g.toFixed(2),"%"]}),(0,a.jsx)("div",{className:`rounded-md border px-2 py-0.5 text-xs font-semibold ${"accommodative"===y?"border-success/40 bg-success/10 text-success-fg":"restrictive"===y?"border-critical/40 bg-critical/10 text-critical-fg":"border-caution/40 bg-caution/10 text-caution-fg"}`,children:y}),(0,a.jsxs)("div",{className:"text-xs text-muted-foreground",children:["Implied real rate ",f.toFixed(2),"%"]})]}),(0,a.jsxs)("div",{className:"mt-5 grid gap-2 text-sm",children:[(0,a.jsx)(I,{label:"i*",formula:`r_neutral + \u{3C0}\u{1D49} + 0.5\xb7(\u{176}\u{1D49} - \u{176}_trend) + 0.5\xb7(\u{3C0}\u{1D49} - \u{3C0}_target)`,result:""}),(0,a.jsx)(I,{label:"Substituting",formula:`${e.toFixed(2)} + ${l.toFixed(2)} + 0.5\xb7(${d.toFixed(2)} - ${n.toFixed(2)}) + 0.5\xb7(${l.toFixed(2)} - ${r.toFixed(2)})`,result:`${g.toFixed(2)}%`})]})]}),(0,a.jsxs)("div",{className:"grid gap-3 md:grid-cols-3",children:[(0,a.jsx)(H,{icon:(0,a.jsx)(h.Z,{className:"size-5"}),title:"Heat seen as heat",body:"When growth is above trend and inflation is above target, the rule asks for a real rate above neutral. The CB tightens."}),(0,a.jsx)(H,{icon:(0,a.jsx)(x.Z,{className:"size-5"}),title:"Slack seen as slack",body:"When growth is below trend and inflation is below target, the rule asks for a real rate below neutral. The CB eases."}),(0,a.jsx)(H,{icon:(0,a.jsx)(u.Z,{className:"size-5"}),title:"Pushing on a string",body:"At the zero lower bound, the rule may want a rate lower than the CB can deliver. That is where QE and forward guidance come in."})]})]})]})]})}function X(e){let{label:t,value:r,min:s,max:i,step:n,display:o,onChange:l}=e;return(0,a.jsxs)("label",{className:"block",children:[(0,a.jsxs)("span",{className:"flex items-center justify-between gap-3 text-sm font-medium text-muted-foreground",children:[(0,a.jsx)("span",{children:t}),(0,a.jsx)("span",{className:"font-mono text-foreground",children:o})]}),(0,a.jsx)("input",{type:"range",min:s,max:i,step:n,value:r,onChange:e=>l(Number(e.target.value)),className:"mt-3 w-full accent-brand"})]})}function I(e){let{label:t,formula:r,result:s}=e;return(0,a.jsxs)("div",{className:"grid gap-2 px-3 py-3 text-sm md:grid-cols-[120px_minmax(0,1fr)_110px] md:items-center rounded-md border border-border",children:[(0,a.jsx)("div",{className:"font-semibold text-foreground",children:t}),(0,a.jsx)("div",{className:"font-mono text-muted-foreground break-words",children:r}),s?(0,a.jsx)("div",{className:"font-mono font-semibold text-foreground md:text-right",children:s}):(0,a.jsx)("div",{})]})}function H(e){let{icon:t,title:r,body:s}=e;return(0,a.jsxs)("div",{className:"rounded-lg border border-border bg-card/80 p-4 shadow-sm",children:[(0,a.jsxs)("div",{className:"flex items-center gap-2 text-brand-ink",children:[t,(0,a.jsx)("h3",{className:"font-semibold text-foreground",children:r})]}),(0,a.jsx)("p",{className:"mt-2 text-sm leading-6 text-muted-foreground",children:s})]})}function P(){let[e,t]=s.useState(["capital","policy"]),r={capital:{label:"Free capital flows",x:220,y:80,color:"var(--info-fg)",sub:"No restrictions on cross-border investment"},fx:{label:"Fixed exchange rate",x:60,y:320,color:"var(--caution-fg)",sub:"Currency pegged to another"},policy:{label:"Independent monetary policy",x:380,y:320,color:"var(--success-fg)",sub:"Set your own interest rate"}},i=r[["capital","fx","policy"].find(t=>!e.includes(t))??"fx"].label;return(0,a.jsxs)("section",{className:"mt-14",children:[(0,a.jsx)(W,{kicker:"Step 2.5 \xb7 Constraint",title:"The MundellâFleming trilemma",body:"A central bank cannot have all three at once. Click two corners to lock them in, and the third one is what the country must give up. The trilemma is why hot money flows are politically dangerous: in a fixed FX regime with open capital, the central bank has lost the steering wheel."}),(0,a.jsxs)("div",{className:"mt-6 grid gap-6 lg:grid-cols-[minmax(0,1fr)_360px]",children:[(0,a.jsxs)("div",{className:"rounded-lg border border-border bg-card/80 p-5 shadow-sm",children:[(0,a.jsxs)("svg",{viewBox:"0 0 460 410",className:"h-auto w-full",role:"img","aria-label":"Mundell-Fleming trilemma",children:[(0,a.jsx)("title",{children:"MundellâFleming trilemma"}),(0,a.jsx)("polygon",{points:`${r.capital.x},${r.capital.y} ${r.fx.x},${r.fx.y} ${r.policy.x},${r.policy.y}
2`,fill:"color-mix(in oklch, var(--chart-1) 8%, transparent)",stroke:"var(--border)",strokeWidth:1.5}),["capital","fx","policy"].map(s=>{let i=r[s],n=e.includes(s);return(0,a.jsxs)("g",{onClick:()=>{t(e=>e.includes(s)?1===e.length?e:e.filter(e=>e!==s):e.length>=2?[e[1],s]:[...e,s])},style:{cursor:"pointer"},children:[(0,a.jsx)("circle",{cx:i.x,cy:i.y,r:42,fill:n?`color-mix(in oklch, ${i.color} 16%, var(--card))`:"var(--card)",stroke:i.color,strokeWidth:3,opacity:n?.95:.7}),(0,a.jsx)("text",{x:i.x,y:i.y-4,textAnchor:"middle",className:"fill-foreground text-[12px] font-semibold",children:i.label.split(" ")[0]}),(0,a.jsx)("text",{x:i.x,y:i.y+14,textAnchor:"middle",className:"fill-foreground text-[12px] font-semibold",children:i.label.split(" ").slice(1).join(" ")}),(0,a.jsx)("text",{x:i.x,y:i.y+("capital"===s?-56:64),textAnchor:"middle",className:"fill-muted-foreground text-[11px]",children:i.sub})]},s)}),(0,a.jsx)("text",{x:230,y:210,textAnchor:"middle",className:"fill-critical-fg text-[14px] font-semibold",children:"Give up:"}),(0,a.jsx)("text",{x:230,y:232,textAnchor:"middle",className:"fill-foreground text-[16px] font-bold",children:i})]}),(0,a.jsx)("p",{className:"mt-4 text-xs text-muted-foreground",children:"Click any corner to toggle. Exactly two stay on; the third is the country's sacrifice."})]}),(0,a.jsxs)("div",{className:"rounded-lg border border-border bg-card/80 p-5 shadow-sm",children:[(0,a.jsx)("h3",{className:"text-lg font-semibold text-foreground",children:"Real-world choices"}),(0,a.jsx)("div",{className:"mt-3 divide-y divide-border",children:[{name:"United States",pick:"capital + policy",sacrifice:"Floats the dollar"},{name:"Hong Kong",pick:"capital + fx",sacrifice:"Imports US monetary policy via the peg"},{name:"China (1994â2005)",pick:"fx + policy",sacrifice:"Maintained capital controls"},{name:"Eurozone members",pick:"capital + fx (vs. peers)",sacrifice:"Surrendered national monetary policy to the ECB"}].map(e=>(0,a.jsxs)("div",{className:"py-3",children:[(0,a.jsx)("div",{className:"font-semibold text-foreground",children:e.name}),(0,a.jsxs)("div",{className:"mt-1 text-xs text-muted-foreground",children:["Keeps: ",(0,a.jsx)("span",{className:"font-mono text-brand-ink",children:e.pick})]}),(0,a.jsxs)("div",{className:"mt-0.5 text-xs text-muted-foreground",children:["Sacrifices: ",(0,a.jsx)("span",{className:"text-critical-fg",children:e.sacrifice})]})]},e.name))})]})]})]})}function D(){let[e,t]=s.useState(5),[r,i]=s.useState(2),[n,o]=s.useState(.25),[l,c]=s.useState(.5),d=s.useMemo(()=>e-r+n+l,[e,r,n,l]),m=e>r?"into":e<r?"out of":"balanced for",h=Math.min(100,25*Math.abs(e-r));return(0,a.jsxs)("section",{className:"mt-14",children:[(0,a.jsx)(W,{kicker:"Step 3 \xb7 Push and pull",title:"How rate differentials move capital",body:"Capital seeks the highest risk-adjusted expected return. In a world of perfect capital mobility, the exchange rate is driven to the point where it is expected to depreciate by exactly the excess return on the home portfolio. The entire pull/push mechanic falls out of this single equilibrium identity."}),(0,a.jsxs)("div",{className:"mt-6 grid gap-6 lg:grid-cols-[380px_minmax(0,1fr)]",children:[(0,a.jsxs)("div",{className:"rounded-lg border border-border bg-card/80 p-5 shadow-sm",children:[(0,a.jsxs)("div",{className:"flex items-center gap-2 text-sm font-semibold text-brand-ink",children:[(0,a.jsx)(p.Z,{className:"size-4"}),"Two-country diff"]}),(0,a.jsxs)("div",{className:"mt-5 grid gap-5",children:[(0,a.jsx)(X,{label:"Home short rate (rd)",value:e,min:0,max:15,step:.25,display:`${e.toFixed(2)}%`,onChange:t}),(0,a.jsx)(X,{label:"Foreign short rate (rf)",value:r,min:0,max:15,step:.25,display:`${r.toFixed(2)}%`,onChange:i}),(0,a.jsx)(X,{label:"Term premium (home â foreign)",value:n,min:-2,max:2,step:.05,display:`${n.toFixed(2)}%`,onChange:o}),(0,a.jsx)(X,{label:"Credit premium (home â foreign)",value:l,min:-2,max:2,step:.05,display:`${l.toFixed(2)}%`,onChange:c})]})]}),(0,a.jsxs)("div",{className:"grid gap-4",children:[(0,a.jsx)(_,{flowDirection:m,magnitude:h,rdHome:e,rfForeign:r}),(0,a.jsxs)("div",{className:"rounded-lg border border-border bg-card/80 p-5 shadow-sm",children:[(0,a.jsx)("div",{className:"text-xs font-semibold uppercase tracking-wide text-muted-foreground",children:"Building-block identity â equilibrium expected FX change"}),(0,a.jsx)(I,{label:"E(%ÎS)",formula:"(rd â rf) + (termd â termf) + (creditd â creditf) + (eqtyd â eqtyf) + (liqd â liqf)",result:""}),(0,a.jsx)(I,{label:"Numerically",formula:`(${e.toFixed(2)} \u{2212} ${r.toFixed(2)}) + ${n.toFixed(2)} + ${l.toFixed(2)}`,result:`${d.toFixed(2)}%`}),(0,a.jsxs)("p",{className:"mt-3 text-sm leading-7 text-muted-foreground",children:["The identity says the home currency must be expected to ",(0,a.jsxs)("span",{className:"font-semibold text-foreground",children:["depreciate by ",d.toFixed(2),"%"]})," for risk-adjusted expected returns to be equal across markets. Capital is flowing ",(0,a.jsxs)("span",{className:"font-semibold text-foreground",children:[m," the home country"]})," right now."]})]})]})]})]})}function _(e){let{flowDirection:t,magnitude:r,rdHome:s,rfForeign:i}=e,n="into"===t,o="out of"===t,l=Math.min(8,Math.max(1,Math.round(r/12)));return(0,a.jsx)("div",{className:"overflow-x-auto rounded-lg border border-border bg-card/80 p-5 shadow-sm",children:(0,a.jsxs)("div",{className:"min-w-[700px]",children:[(0,a.jsx)("h3",{className:"text-xl font-semibold text-foreground",children:"Push / pull schematic"}),(0,a.jsx)("p",{className:"mt-1 text-sm text-muted-foreground",children:"Arrows count and direction scale with the rate differential."}),(0,a.jsxs)("svg",{viewBox:"0 0 760 220",className:"mt-3 h-auto w-full",role:"img","aria-label":"Capital flow direction",children:[(0,a.jsx)("title",{children:"Capital flow direction between two countries"}),(0,a.jsx)("circle",{cx:130,cy:110,r:72,fill:"color-mix(in oklch, var(--info) 18%, transparent)",stroke:"var(--info-fg)",strokeWidth:2}),(0,a.jsx)("text",{x:130,y:92,textAnchor:"middle",className:"fill-foreground text-[14px] font-semibold",children:"Home"}),(0,a.jsxs)("text",{x:130,y:114,textAnchor:"middle",className:"fill-info-fg text-[20px] font-bold font-mono",children:[s.toFixed(2),"%"]}),(0,a.jsx)("text",{x:130,y:132,textAnchor:"middle",className:"fill-muted-foreground text-[11px]",children:"policy rate"}),(0,a.jsx)("circle",{cx:630,cy:110,r:72,fill:"color-mix(in oklch, var(--caution) 18%, transparent)",stroke:"var(--caution-fg)",strokeWidth:2}),(0,a.jsx)("text",{x:630,y:92,textAnchor:"middle",className:"fill-foreground text-[14px] font-semibold",children:"Foreign"}),(0,a.jsxs)("text",{x:630,y:114,textAnchor:"middle",className:"fill-caution-fg text-[20px] font-bold font-mono",children:[i.toFixed(2),"%"]}),(0,a.jsx)("text",{x:630,y:132,textAnchor:"middle",className:"fill-muted-foreground text-[11px]",children:"policy rate"}),Array.from({length:l}).map((e,t)=>{let r=110+(t-(l-1)/2)*18;return n?(0,a.jsx)("g",{children:(0,a.jsx)("line",{x1:554,y1:r,x2:206,y2:r,stroke:"var(--success-fg)",strokeWidth:2.5,markerEnd:"url(#arrowEm)"})},t):o?(0,a.jsx)("g",{children:(0,a.jsx)("line",{x1:206,y1:r,x2:554,y2:r,stroke:"var(--critical-fg)",strokeWidth:2.5,markerEnd:"url(#arrowRose)"})},t):null}),(0,a.jsxs)("defs",{children:[(0,a.jsx)("marker",{id:"arrowEm",viewBox:"0 0 10 10",refX:"9",refY:"5",markerWidth:"8",markerHeight:"8",orient:"auto-start-reverse",children:(0,a.jsx)("path",{d:"M 0 0 L 10 5 L 0 10 z",fill:"var(--success-fg)"})}),(0,a.jsx)("marker",{id:"arrowRose",viewBox:"0 0 10 10",refX:"9",refY:"5",markerWidth:"8",markerHeight:"8",orient:"auto-start-reverse",children:(0,a.jsx)("path",{d:"M 0 0 L 10 5 L 0 10 z",fill:"var(--critical-fg)"})})]}),(0,a.jsx)("text",{x:380,y:32,textAnchor:"middle",className:`${n?"fill-success-fg":o?"fill-critical-fg":"fill-muted-foreground"} text-[13px] font-semibold uppercase tracking-wider`,children:n?`Pull \xb7 capital into home (${s.toFixed(2)}% > ${i.toFixed(2)}%)`:o?`Push \xb7 capital out of home (${s.toFixed(2)}% < ${i.toFixed(2)}%)`:"No differential â capital balanced"})]})]})})}function L(){return(0,a.jsxs)("section",{className:"mt-14",children:[(0,a.jsx)(W,{kicker:"Step 4 \xb7 The dangerous version",title:"Hot money and the carry trade",body:"When capital flows respond vigorously and almost exclusively to nominal rate differentials, they are called hot money. Empirically, this flow is so reliable that the carry trade â borrowing in low-rate currencies and lending in high-rate currencies â has been profitable on average for decades, in direct contradiction to uncovered interest rate parity."}),(0,a.jsxs)("div",{className:"mt-6 grid gap-6 lg:grid-cols-3",children:[(0,a.jsx)(R,{}),(0,a.jsx)("div",{className:"space-y-4 lg:col-span-2",children:(0,a.jsxs)("div",{className:"rounded-lg border border-border bg-card/80 p-5 shadow-sm",children:[(0,a.jsxs)("div",{className:"flex items-center gap-2 text-sm font-semibold text-critical-fg",children:[(0,a.jsx)(g.Z,{className:"size-4"}),"Three problems hot money creates"]}),(0,a.jsxs)("ul",{className:"mt-4 space-y-3 text-sm leading-7 text-muted-foreground",children:[(0,a.jsxs)("li",{className:"grid grid-cols-[28px_minmax(0,1fr)] gap-3",children:[(0,a.jsx)("span",{className:"font-mono text-critical-fg",children:"01"}),(0,a.jsxs)("div",{children:[(0,a.jsx)("span",{className:"font-semibold text-foreground",children:"Limits the central bank."})," MundellâFleming says monetary policy bites less when capital is mobile. Cut rates and the money runs away."]})]}),(0,a.jsxs)("li",{className:"grid grid-cols-[28px_minmax(0,1fr)] gap-3",children:[(0,a.jsx)("span",{className:"font-mono text-critical-fg",children:"02"}),(0,a.jsxs)("div",{children:[(0,a.jsx)("span",{className:"font-semibold text-foreground",children:"Maturity mismatch."})," A flood of short-term financing tempts firms to fund long-term needs with hot money. When the flow reverses, those firms cannot roll their debt."]})]}),(0,a.jsxs)("li",{className:"grid grid-cols-[28px_minmax(0,1fr)] gap-3",children:[(0,a.jsx)("span",{className:"font-mono text-critical-fg",children:"03"}),(0,a.jsxs)("div",{children:[(0,a.jsx)("span",{className:"font-semibold text-foreground",children:"FX overshooting."})," The exchange rate move is larger than fundamentals warrant in the short run, disrupting non-financial businesses that price and hedge in currency units."]})]})]}),(0,a.jsx)(B,{tone:"amber",body:"These problems are most acute in emerging markets, where domestic financial markets are smaller and more fragile, and where the offshore wholesale funding base is much larger than the onshore deposit base."})]})})]})]})}function R(){let[e,t]=s.useState(8),[r,i]=s.useState(.5),[n,o]=s.useState(-2.5),l=e-r+n;return(0,a.jsxs)("div",{className:"rounded-lg border border-border bg-card/80 p-5 shadow-sm",children:[(0,a.jsxs)("div",{className:"flex items-center gap-2 text-sm font-semibold text-brand-ink",children:[(0,a.jsx)(y,{className:"size-4"}),"Carry trade ledger"]}),(0,a.jsx)("p",{className:"mt-2 text-sm leading-6 text-muted-foreground",children:"Borrow at the low rate, invest at the high rate, take the FX risk."}),(0,a.jsxs)("div",{className:"mt-4 grid gap-4",children:[(0,a.jsx)(X,{label:"High-rate currency yield",value:e,min:0,max:20,step:.25,display:`${e.toFixed(2)}%`,onChange:t}),(0,a.jsx)(X,{label:"Low-rate funding cost",value:r,min:-1,max:10,step:.25,display:`${r.toFixed(2)}%`,onChange:i}),(0,a.jsx)(X,{label:"FX move (negative = high-rate depreciates)",value:n,min:-15,max:15,step:.25,display:`${n>=0?"+":""}${n.toFixed(2)}%`,onChange:o})]}),(0,a.jsxs)("div",{className:"mt-5 rounded-md border border-border p-4",children:[(0,a.jsx)("div",{className:"text-xs font-semibold uppercase tracking-wide text-muted-foreground",children:"Net carry return"}),(0,a.jsxs)("div",{className:`mt-1 font-mono text-3xl font-semibold ${l>0?"text-success-fg":l<0?"text-critical-fg":"text-foreground"}`,children:[l>=0?"+":"",l.toFixed(2),"%"]}),(0,a.jsx)("p",{className:"mt-2 text-xs leading-5 text-muted-foreground",children:"UIP would predict FX move = -(high â low) so the carry exactly cancels. Empirically, FX does not move as much as UIP says â so the carry earns a positive average risk premium."})]})]})}function U(){let[e,t]=s.useState(1.5),r=s.useMemo(()=>(function(){let e=[];for(let t=0;t<=200;t++){let r=t/200*5,a=100;r>.02&&(a=105+7*Math.exp(-(.8*(r-.02)))),e.push({t:r,pre:100,eq:105,actual:a})}return e})(),[]),i=Math.max(0,Math.min(5,e));return(0,a.jsxs)("section",{className:"mt-14",children:[(0,a.jsx)(W,{kicker:"Step 5 \xb7 Currency response",title:"Dornbusch overshooting in three phases",body:"When the home country becomes more attractive (say, via a surprise rate hike), the exchange rate does not glide smoothly toward its new equilibrium. It jumps past it. The overshoot creates the expected-future depreciation that equalizes risk-adjusted returns. Scrub the time slider to see all three phases play out."}),(0,a.jsxs)("div",{className:"mt-6 rounded-lg border border-border bg-card/80 p-5 shadow-sm",children:[(0,a.jsx)(O,{series:r,cursor:i}),(0,a.jsxs)("div",{className:"mt-3",children:[(0,a.jsx)("input",{type:"range",min:0,max:5,step:.05,value:e,onCh
2ange:e=>t(Number(e.target.value)),className:"w-full accent-brand","aria-label":"Time slider for overshooting visualization"}),(0,a.jsxs)("div",{className:"mt-2 flex justify-between text-xs text-muted-foreground",children:[(0,a.jsx)("span",{children:"t=0 \xb7 rate hike"}),(0,a.jsx)("span",{children:"jump \xb7 overshoot"}),(0,a.jsx)("span",{children:"consolidate"}),(0,a.jsx)("span",{children:"retracement"}),(0,a.jsx)("span",{children:"t=5 \xb7 new equilibrium"})]})]})]}),(0,a.jsxs)("div",{className:"mt-4 grid gap-3 md:grid-cols-3",children:[(0,a.jsx)(Y,{tone:"emerald",title:"Phase 1 \xb7 Jump",body:"The currency appreciates immediately â and overshoots the long-run level. The size of the jump depends on how much the differential exceeds the equilibrium expected depreciation."}),(0,a.jsx)(Y,{tone:"amber",title:"Phase 2 \xb7 Consolidate",body:"Investors begin to form expectations of a reversal. The currency drifts at an extended level. Hot money continues to inflow but at a slower pace."}),(0,a.jsx)(Y,{tone:"blue",title:"Phase 3 \xb7 Retrace",body:"As asset prices adjust and capital is reallocated, the exchange rate retraces part of the move. The new equilibrium is closer to (but not equal to) the pre-shock level."})]})]})}function Y(e){let{tone:t,title:r,body:s}=e;return(0,a.jsxs)("div",{className:`rounded-lg border p-4 shadow-sm ${{emerald:"border-success/40 bg-success/10",amber:"border-caution/40 bg-caution/10",blue:"border-chart-1/40 bg-chart-1/10"}[t]}`,children:[(0,a.jsx)("h3",{className:"font-semibold text-foreground",children:r}),(0,a.jsx)("p",{className:"mt-2 text-sm leading-6 text-muted-foreground",children:s})]})}function O(e){let{series:t,cursor:r}=e,s=(0,i.BYU)().domain([0,5]).range([60,870]),n=(0,i.BYU)().domain([95,115]).range([290,30]),o=(0,i.jvg)().x(e=>s(e.t)).y(e=>n(e.actual))(t)??"",l=(0,i.jvg)().x(e=>s(e.t)).y(e=>n(e.eq))(t)??"",c=(0,i.jvg)().x(e=>s(e.t)).y(e=>n(e.pre))(t)??"",d=t.find(e=>.03>Math.abs(e.t-r))??t[Math.floor(r/5*t.length)],m=r<.4?"1 \xb7 Jump":r<2.2?"2 \xb7 Consolidate":"3 \xb7 Retrace",h=t.filter(e=>e.t<=r),x=(0,i.jvg)().x(e=>s(e.t)).y(e=>n(e.actual))(h)??"";return(0,a.jsx)("div",{className:"overflow-x-auto",children:(0,a.jsxs)("div",{className:"min-w-[840px]",children:[(0,a.jsxs)("div",{className:"flex items-baseline justify-between gap-4",children:[(0,a.jsx)("h3",{className:"text-xl font-semibold text-foreground",children:"Exchange rate (home currency per foreign unit \xb7 lower = stronger home)"}),(0,a.jsxs)("div",{className:"rounded-md border border-brand/40 bg-brand/10 px-2 py-1 text-xs font-semibold text-brand-ink",children:["Phase ",m]})]}),(0,a.jsxs)("svg",{viewBox:"0 0 900 340",className:"mt-3 h-auto w-full",role:"img","aria-label":"Dornbusch overshooting chart",children:[(0,a.jsx)("title",{children:"Dornbusch overshooting"}),(0,a.jsx)("line",{x1:60,y1:30,x2:60,y2:290,stroke:"var(--border)"}),(0,a.jsx)("line",{x1:60,y1:290,x2:870,y2:290,stroke:"var(--border)"}),[95,100,105,110,115].map(e=>(0,a.jsxs)("g",{children:[(0,a.jsx)("line",{x1:60,y1:n(e),x2:870,y2:n(e),stroke:"var(--border)",strokeDasharray:"3 5",opacity:.6}),(0,a.jsx)("text",{x:52,y:n(e)+4,textAnchor:"end",className:"fill-muted-foreground text-[11px]",children:e})]},e)),[0,1,2,3,4,5].map(e=>(0,a.jsx)("g",{children:(0,a.jsxs)("text",{x:s(e),y:310,textAnchor:"middle",className:"fill-muted-foreground text-[11px]",children:["t=",e]})},e)),(0,a.jsx)("path",{d:c,stroke:"var(--muted-foreground)",strokeWidth:1.5,strokeDasharray:"2 4",fill:"none",opacity:.6}),(0,a.jsx)("path",{d:l,stroke:"var(--success-fg)",strokeWidth:2,strokeDasharray:"6 4",fill:"none",opacity:.8}),(0,a.jsx)("path",{d:o,stroke:"var(--chart-1)",strokeWidth:1.5,fill:"none",opacity:.25}),(0,a.jsx)("path",{d:x,stroke:"var(--chart-1)",strokeWidth:3.5,fill:"none",strokeLinecap:"round",strokeLinejoin:"round"}),(0,a.jsx)("line",{x1:s(r),y1:30,x2:s(r),y2:290,stroke:"var(--caution-fg)",strokeWidth:2,strokeDasharray:"3 3"}),(0,a.jsx)("circle",{cx:s(r),cy:n(d.actual),r:8,fill:"var(--caution-fg)",stroke:"var(--foreground)",strokeWidth:2}),(0,a.jsx)("text",{x:862,y:n(105)-6,textAnchor:"end",className:"fill-success-fg text-[11px] font-semibold",children:"New long-run equilibrium"}),(0,a.jsx)("text",{x:68,y:n(100)-6,className:"fill-muted-foreground text-[11px] font-semibold",children:"Pre-shock level"}),(0,a.jsxs)("text",{x:s(r)+10,y:n(d.actual)-10,className:"fill-caution-fg text-[12px] font-semibold",children:["FX = ",d.actual.toFixed(2)]})]})]})})}function V(){return(0,a.jsxs)("section",{className:"mt-14",children:[(0,a.jsx)(W,{kicker:"Step 6 \xb7 Defense",title:"How central banks fight back",body:"When hot money threatens, central banks have a toolkit. Each tool trades one problem for another. The trick is identifying which tool is being deployed at any moment and what it costs."}),(0,a.jsx)("div",{className:"mt-6 grid gap-4 md:grid-cols-2 lg:grid-cols-4",children:[{title:"FX market intervention",tone:"sky",body:"CB sells foreign reserves to defend a weakening peg, or buys foreign currency to fight an appreciation. Limited by the size of FX reserves and by political will."},{title:"Sterilization",tone:"emerald",body:"After an FX intervention changes bank reserves, the CB sells (or buys) government securities to neutralize the impact on the domestic interest rate. Maintains monetary independence â at the cost of larger CB balance sheets."},{title:"Capital controls",tone:"rose",body:"Outright restrictions on cross-border investment. The nuclear option in MundellâFleming. Effective in the short run but distort markets and signal regime fragility."},{title:"Macroprudential",tone:"amber",body:"Reserve requirements, FX limits on banks, taxes on
2short-term inflows. Aimed at the maturity mismatch problem without closing the border entirely."}].map(e=>(0,a.jsxs)("div",{className:"rounded-lg border border-border bg-card/80 p-5 shadow-sm",children:[(0,a.jsx)("div",{className:`inline-flex items-center gap-2 rounded-md border px-2 py-0.5 text-xs font-semibold ${"sky"===e.tone?"border-info/40 bg-info/10 text-info-fg":"emerald"===e.tone?"border-success/40 bg-success/10 text-success-fg":"rose"===e.tone?"border-critical/40 bg-critical/10 text-critical-fg":"border-caution/40 bg-caution/10 text-caution-fg"}`,children:e.title}),(0,a.jsx)("p",{className:"mt-3 text-sm leading-7 text-muted-foreground",children:e.body})]},e.title))})]})}function J(){let e=[{name:"Trough â recovery",policy:"Sharp cuts; QE if at ZLB",flow:"Push out \xb7 capital seeks higher yields abroad",fx:"Weak home currency",curve:"Steep \xb7 long yields anticipate normalization",winners:"Bonds (rallying), recovery-sensitive equities",tone:"emerald",icon:(0,a.jsx)(b,{className:"size-4"})},{name:"Expansion",policy:"Neutral â gradually tightening",flow:"Pull in \xb7 attractive risk-adjusted returns",fx:"Strengthening home currency",curve:"Flattening \xb7 short end catches up",winners:"Equities (esp. cyclicals), real estate",tone:"sky",icon:(0,a.jsx)(h.Z,{className:"size-4"})},{name:"Peak",policy:"Tight; final hikes",flow:"Pull in but overshooting \xb7 carry trade extended",fx:"Overshoot \xb7 home currency strong but vulnerable",curve:"Flat or inverted",winners:"Cash, defensives, short duration",tone:"amber",icon:(0,a.jsx)(v,{className:"size-4"})},{name:"Contraction",policy:"Easing aggressively",flow:"Push out \xb7 capital flees to safer markets",fx:"Weak home currency \xb7 unless reserve currency safe-haven flows",curve:"Steepening from the front",winners:"Long bonds, defensive sectors, gold",tone:"rose",icon:(0,a.jsx)(x.Z,{className:"size-4"})}];return(0,a.jsxs)("section",{className:"mt-14",children:[(0,a.jsx)(W,{kicker:"Putting it together",title:"The business cycle quadrant",body:"A compact mental model for cross-asset positioning over the cycle. The same logic answers every macro scenario: where in the cycle, what is the CB doing, which way is capital flowing, what should the yield curve look like, what is winning."}),(0,a.jsx)("div",{className:"mt-6 grid gap-4 md:grid-cols-2",children:e.map(e=>(0,a.jsxs)("div",{className:"rounded-lg border border-border bg-card/80 p-5 shadow-sm",children:[(0,a.jsx)("div",{className:"flex items-center gap-2",children:(0,a.jsxs)("div",{className:`inline-flex items-center gap-1.5 rounded-md border px-2 py-0.5 text-xs font-semibold ${(e=>{switch(e){case"emerald":return"border-success/40 bg-success/10 text-success-fg";case"sky":return"border-info/40 bg-info/10 text-info-fg";case"amber":return"border-caution/40 bg-caution/10 text-caution-fg";case"rose":return"border-critical/40 bg-critical/10 text-critical-fg";default:return""}})(e.tone)}`,children:[e.icon,e.name]})}),(0,a.jsxs)("div",{className:"mt-4 grid grid-cols-[110px_minmax(0,1fr)] gap-2 text-sm",children:[(0,a.jsx)("div",{className:"text-muted-foreground",children:"CB policy"}),(0,a.jsx)("div",{className:"text-foreground",children:e.policy}),(0,a.jsx)("div",{className:"text-muted-foreground",children:"Capital flow"}),(0,a.jsx)("div",{className:"text-foreground",children:e.flow}),(0,a.jsx)("div",{className:"text-muted-foreground",children:"Exchange rate"}),(0,a.jsx)("div",{className:"text-foreground",children:e.fx}),(0,a.jsx)("div",{className:"text-muted-foreground",children:"Yield curve"}),(0,a.jsx)("div",{className:"text-foreground",children:e.curve}),(0,a.jsx)("div",{className:"text-muted-foreground",children:"Winners"}),(0,a.jsx)("div",{className:"font-medium text-foreground",children:e.winners})]})]},e.name))})]})}function Q(){return(0,a.jsxs)("section",{className:"mt-14",children:[(0,a.jsx)(W,{kicker:"Practice",title:"Five scenarios to reason through",body:"Cover each answer and reason from the chain. If your answer matches, you have internalized the mechanic; if not, identify which step you skipped."}),(0,a.jsx)("div",{className:"mt-6 grid gap-3",children:[{q:"Country B has a credibly fixed exchange rate against the dollar and allows free capital flows. Inflation begins to rise sharply. Can Country B independently raise its policy rate to combat inflation?",a:"No. By the MundellâFleming trilemma, Country B has committed to free capital flows and a fixed FX, so it must give up monetary independence. Raising the policy rate would attract additional capital, force currency appreciation, and break the peg. Country B is importing US monetary policy."},{q:"A small open economy with a floating exchange rate experiences a surprise +100 bp rate hike. UIP would predict the currency depreciates by 1% per year going forward. What actually happens to the currency in the short run?",a:"It appreciates immediately and overshoots the new long-run equilibrium. The Dornbusch mechanism is that the FX rate must jump high enough that the expected depreciation from the overshooting level equals the rate differential â so risk-adjusted expected returns equalize."},{q:"An emerging market central bank is intervening in the FX market by selling dollars to defend its currency. What additional step is required to keep the domestic policy rate on target?",a:"Sterilization. Selling dollars drains domestic liquidity (bank reserves fall). To offset this and maintain the policy rate, the CB simultaneously buys domestic government securities. Net: FX reserves fall, securities holdings rise, bank reserves are roughly unchanged."},{q:"A carry trade strategy long-funded by JPY and long-invested in AUD has been profitable for 18 months. The Bank of Japan signals a tightening cycle. What happens to the carry trade?",a:'The carry trade unwinds rapidly. Funding costs rise, FX overshoots are likely to reverse, and crowded positions are unwound at the same time. The unwind itself causes the JPY to strengthen, magnifying losses. This is the classic "the elevator down" pattern for carry trades.'},{q:"A tax-cut-driven fiscal expansion increases the current account deficit. Which financial-market adjustments are most consistent with the capital account financing the deficit?",a:"Higher bond yields and stronger equities to attract foreign capital inflows. The exchange rate effect is ambiguous because capital inflows and the trade deficit are offsetting. Real rates rise relative to the rest of the world."}].map((e,t)=>(0,a.jsxs)("details",{className:"group rounded-lg border border-border bg-card/80 p-5 shadow-sm",children:[(0,a.jsxs)("summary",{className:"cursor-pointer text-foreground",children:[(0,a.jsxs)("span",{className:"mr-3 inline-block rounded-md border border-brand/40 bg-brand/10 px-2 py-0.5 text-xs font-semibold text-brand-ink",children:["Q",t+1]}),(0,a.jsx)("span",{className:"font-medium",children:e.q})]}),(0,a.jsxs)("div",{className:"mt-3 rounded-md border border-success/40 bg-success/5 p-4 text-sm leading-7 text-muted-foreground",children:[(0,a.jsx)("span",{className:"mr-2 inline-block rounded-md border border-success/40 bg-success/20 px-1.5 py-0.5 text-[10px] font-semibold uppercase text-success-fg",children:"Answer"}),e.a]})]},t))})]})}function G(){return(0,a.jsxs)("section",{className:"mt-14 rounded-lg border border-border bg-card/80 p-6 shadow-sm",children:[(0,a.jsx)("h2",{className:"text-2xl font-semibold text-foreground",children:"FAQ"}
2),(0,a.jsx)("div",{className:"mt-5 divide-y divide-border",children:M.map(e=>(0,a.jsxs)("details",{className:"py-4",children:[(0,a.jsx)("summary",{className:"cursor-pointer font-semibold text-foreground",children:e.q}),(0,a.jsx)("p",{className:"mt-2 text-sm leading-7 text-muted-foreground",children:e.a})]},e.q))})]})}function K(){return(0,a.jsxs)("section",{className:"mt-14 grid gap-4 rounded-lg border border-brand/40 bg-brand/10 p-6 shadow-sm md:grid-cols-[minmax(0,1fr)_auto] md:items-center",children:[(0,a.jsxs)("div",{children:[(0,a.jsxs)("div",{className:"inline-flex items-center gap-2 rounded-md border border-brand/40 bg-brand/20 px-2 py-0.5 text-xs font-semibold text-brand-ink",children:[(0,a.jsx)(j.Z,{className:"size-3.5"}),"Now play with it"]}),(0,a.jsx)("h2",{className:"mt-3 text-2xl font-semibold text-foreground",children:"Two-country simulator"}),(0,a.jsx)("p",{className:"mt-2 max-w-2xl text-sm leading-7 text-muted-foreground",children:"Set policy rates for two countries, run a deflationary or inflationary shock, and watch capital particles flow, the Dornbusch overshoot resolve, and the trilemma snap when you push too hard."})]}),(0,a.jsxs)("a",{href:"/visuals/hot-money-simulator",className:"inline-flex items-center gap-2 self-start rounded-md bg-brand px-5 py-3 text-sm font-semibold text-brand-foreground transition hover:bg-brand-strong",children:["Open the hot money arena",(0,a.jsx)(w.Z,{className:"size-4"})]})]})}},27697:function(e,t,r){r.d(t,{H:()=>s,S:()=>a});let a="/visuals",s=[{slug:"repo-agreements",href:`${a}/repo-agreements`,title:"Repo agreements, haircuts, and leverage",shortTitle:"Repo agreements",description:"See how a repo haircut splits a bond position between lender cash and your own equity, then watch leverage and equity losses update as the bond price moves.",topic:"Fixed income",format:"Interactive visual"},{slug:"economic-cycle-hot-money",href:`${a}/economic-cycle-hot-money`,title:"Economic cycle, capital flows, and hot money",shortTitle:"Capital flows & hot money",description:"Trace the master chain of international macro: business cycle phase, central bank reaction, real rate differential, hot money flow, FX overshoot, and asset class response.",topic:"International macro",format:"Concept summary"},{slug:"hot-money-simulator",href:`${a}/hot-money-simulator`,title:"Hot money arena: two-country macro simulator",shortTitle:"Hot money arena",description:"A two-country sandbox. Set policy rates, expected inflation, and shocks; watch capital flow as particles, the Dornbusch overshooting play out in three phases, and the MundellâFleming trilemma snap when you try to keep all three corners.",topic:"International macro",format:"Interactive simulator"}]}}]);
Line numbers count LF bytes from the start of the resource, as the search results do. Vendor segments are library code the classifier recognised; they are stored but not indexed. Bytes are shown as Latin1 characters, one per byte.