The Balance of Payments in a Monetary Economy

The Balance of Payments in a Monetary Economy

Copyright Date: 1976
Pages: 210
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  • Book Info
    The Balance of Payments in a Monetary Economy
    Book Description:

    How can relative price and income approaches be reconciled with balance of payments analysis? John F. Kyle argues that a model is required which explicity includes a production sector and a complete monetary sectory.

    The author demonstrates the inadequacy of the traditional method of extending macroeconomic models to deal with trade problems and proceeds to develop a properly specified open economy model adequate to the task. After extending the model to look at additional issues, he relates the principal results obtained in a macroeconomic setting to those produced using a Hahn-type monetary approach. The Hahn model is extended to incorporate an alternative financial asset and to allow for unemployment in the economy. His theory of the balance of payments takes into account both important monetary and aggregate demand features of macroeconomics and the relative prices and interdependencies of general equilibrium theory.

    Originally published in 1976.

    ThePrinceton Legacy Libraryuses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These paperback editions preserve the original texts of these important books while presenting them in durable paperback editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

    eISBN: 978-1-4008-6994-7
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Introduction to the Fourth Winner of the Irving Fisher Award
    (pp. vii-viii)

    This is the fourth volume in the series of Irving Fisher Award Monographs, sponsored by Omicron Delta Epsilon, The International Honor Society in Economics. The author of this volume, Professor John F. Kyle of New York University, is the winner of the 1973 Irving Fisher Award. There was no award in 1972; the Final Selection Board decided that none of the entries met the high standards established for this prestigious award. 1973, on the other hand, was a banner year with five finalists selected by the International Editorial Board. Dr. Kyle’s entry, submitted by the University of Wisconsin (which also...

    (pp. ix-x)
  4. Table of Contents
    (pp. xi-2)
  5. CHAPTER 1 Approaches to the Analysis of Devaluation: A Brief Survey
    (pp. 3-34)

    Despite several significant advances in recent years, it remains true that the monetary aspects of international economic theory are much less fully understood than are its barter properties, and the conclusions of most monetary analyses are much less definitive. Perhaps the best illustration of this is the fact that the unsuspecting reader, first approaching the balance of payments adjustment literature, can readily find three distinct, unreconciled approaches to the analysis of the impact of exchange rate changes on the balance of payments. Since none of the three approaches¹ has discredited or disproved the other two, the need for a reconciliation,...

  6. CHAPTER 2 Macroeconomic Models of Open Economies: Some Specification Problems
    (pp. 35-46)

    In Chapter 1 the macroeconomic-type general equilibrium models used in existing analyses of open economies were challenged as unsatisfactory because they are either incomplete, misspecified, or both. They are incomplete because they lack either a production sector, a monetary sector, or both, and/or because they make extremely limiting assumptions, such as fixed prices everywhere. Misspecification comes from a failure to recognize that the complete closed-economy macroeconomic model is, in effect, a one-good world. Since trade models by definition include more than one good, extending the macroeconomic framework to encompass an open economy requires more care in the definition of real...

  7. CHAPTER 3 An Integrated Macroeconomic Model of an Open Economy
    (pp. 47-108)

    As was just demonstrated in Chapter 2, extending the “standard” macro model to allow for international trade is far from the trivial exercise often assumed. Moreover, with few exceptions, such an extension has not been undertaken correctly in the literature. The first part of this chapter, therefore, will develop a complete macroeconomic model of an open economy that is free of the specification errors discussed above.¹ Once the model has been developed, it will then be employed to analyze the short-run effects of a devaluation on both a fully employed and an underemployed economy. As will be seen, the model...

  8. CHAPTER 4 Long-Run Adjustment and the Role of Monetary and Fiscal Policies
    (pp. 109-143)

    Thus far, the model developed in Chapter 3 has been used to examine the effect of exchange rate changes on the level of employment and output, as well as on the balance of trade, in Keynesian and Classical worlds. In this chapter, the basic model is extended in order to examine two topics of further interest. In section é the assumption of complete sterilization employed in Chapter 3 is relaxed, and the results of that chapter reexamined. In this analysis it is shown that, without complete sterilization, devaluations must be examined in terms of at least two sets of effects:...

  9. CHAPTER 5 Macroeconomic versus Walrasian Models of an Open Economy
    (pp. 144-173)

    In the preceding chapters, Keynesian and Classical versions of a macroeconomic income-expenditure model have been employed to examine the response of employment, output, and the balance of trade to changes in various control variables. One justification for using this conceptual framework, aside from a desire to provide a model fully integrating the elasticities and absorption approaches to payments analysis, is that perusal of the payments literature reveals that the principal tool employed in general (more or less) equilibrium analyses of the adjustment process has been some version of an open-economy macroeconomic model. However, in this perusal, the reader also will...

  10. CHAPTER 6 Conclusions and Disclaimers
    (pp. 174-180)

    The initial motivation for this study was a belief that one of the main reasons the existing literature had failed adequately to reconcile the conflicting approaches to balance of payments analysis was that the basic research strategy adopted generally was faulty. Rather than begin by setting up a complete open-economy model then use this to analyze payments issues, the more common approach seemed to be to apply a variety of very limited ad hoc models to the problem. As was indicated in Chapter 1, this generated more dispute and discussion than definitive results, and meant that a fundamental issue—the...

    (pp. 181-186)
  12. INDEX
    (pp. 187-192)
  13. Back Matter
    (pp. 193-194)