The article examines whether monetary policy is effective in influencing national income and interest rates in an open economy with fixed exchange rates. The researchers develop a model that considers capital flows as a means for portfolio holders to adjust their asset allocations across borders. They find that traditional theories on the effectiveness of monetary policy may need to be reevaluated when considering capital flows as a stock adjustment process. The study concludes that the effectiveness of monetary policy in open economies may differ from what is commonly believed.