The Role of Home Goods and Money in Exchange Rate Adjustments
Ever since Alexander’s introduction of the ‘absorption’ approach, there has been a certain schizophrenia in balance-of-payments theory. On one hand, the macroeconomic identity that a payments deficit means that expenditures exceed income suggests that analyses of the balance of payments should proceed upon macroeconomic lines. On the other hand, analysis of exchange rate adjustment is, almost by definition, analysis of a relative price change.
KeywordsExchange Rate Foreign Exchange Money Supply Relative Price Trade Balance
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- Johnson, Harry G. ‘Towards a General Theory of the Balance of Payments’, chap. VI of his International Trade and Economic Growth, Cambridge, Mass.: Harvard University Press, 1958.Google Scholar