Capital flight

The graphs below depict the loanable funds market and the relationship between real interest rates and the level of net capital outflow (NCO) calculated in terms of the Mexican peso.

The Market for Loanable Funds in Mexico Mexican Net Capital Outflow 6 Supply 6 5 4 3 REAL INTEREST RATE (Percent) REAL INTEREST RATE (Percent) 2 2 NCO Demand 0 -1 0 1 2 3 4 5 6 7 8 -4 -3 -2 -1 1 2 3 4 5 6 LOANABLE FUNDS (Billions of pesos) NET CAPITAL OUTFLOW (Billions of pesos)The Market for Foreign-Currency Exchange Supply O Demand Supply REAL EXCHANGE RATE (Dollars per peso) Demand QUANTITY OF PESOS