Abstract
The idea that changes in the money-stock are important in explaining balance-of-payments adjustment was already present in Mundell’s model, but it was developed by the Monetary Approach to the Balance of Payments (MABP) to give these changes an exclusive importance in the context of a different model based on a pure stock-adjustment behaviour. The assumptions and conclusions of the MABP (amongst which the ineffectiveness of an exchange-rate devaluation) are examined in detail.
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Notes
- 1.
We shall deal more fully with the purchasing power parity later, among other things so as to examine the reasons for deviations from it, in Sect. 15.1
- 2.
The consideration of situations of disequilibrium, and of the relative adjustment mechanisms of actual to desired stocks, does not change the substance of the argument, though making it more complicated formally. See McCallum and Vines (1981).
- 3.
To avoid confusion, it should be noted that in this section—unlike the other ones in this Appendix—a dash over a variable denotes that it is given (and not a deviation from the equilibrium). This is for the sake of conformity with the notation used in the text.
- 4.
- 5.
The magnitudes \(\left (A - p\overline{y}\right )\) and \(r\left (A_{f} - p_{f}\overline{y}_{f}\right )\) are of opposite signs and equal in absolute value on the basis of (12.43), but as the former is multiplied by a greater positive coefficient than that which multiplies the latter, it is the former which prevails.
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Gandolfo, G. (2016). The Monetary Approach to the Balance of Payments and Related Approaches. In: International Finance and Open-Economy Macroeconomics. Springer Texts in Business and Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-49862-0_12
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