Abstract
This chapter presents an alternative monetary model of the exchange rate and balance of payments which yields several new results about the international adjustment process. For instance, it reveals that contrary to the traditional monetary approach to the balance of payments international adjustment under fixed rates is consistent with money market equilibrium, not disequilibrium. It also suggests a new chain of causality under floating rates that runs from domestic money market to exchange rate to price level, rather than from money market to price level to exchange rate.
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© 2009 Anthony J. Makin
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Makin, A.J. (2009). Money, Exchange Rates and the Balance of Payments. In: Global Imbalances, Exchange Rates and Stabilization Policy. Palgrave Macmillan, London. https://doi.org/10.1057/9780230250758_7
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DOI: https://doi.org/10.1057/9780230250758_7
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-36669-9
Online ISBN: 978-0-230-25075-8
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