A Monetary Model of Exchange Rate and Balance of Payments Adjustment

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Title A Monetary Model of Exchange Rate and Balance of Payments Adjustment
Author Makin, Anthony John
Journal Name Economic Issues
Editor L. Vaughan Williams
Year Published 2005
Place of publication United Kingdom
Publisher Economic Issues Education Fund
Abstract This article proposes an alternative monetary model for examining the effects of domestic monetary shocks on the exchange rate and the balance of payments. Using an output-expenditure framework, it shows that domestic monetary shocks can drive a wedge between national expenditure and production and generate incipient current account imbalances with exchange rate and balance of payments implications. Contrary to previous monetary approaches, the model suggests a new chain of causality that runs from domestic money to the exchange rate to the price level, rather than from money to the price level to the exchange rate. It also shows that under fixed rates external adjustment is consistent with money market equilibrium and price level stability.
Peer Reviewed Yes
Published Yes
Publisher URI http://www.economicissues.org/
Alternative URI http://www.economicissues.org/archive/vol10part1.html
Volume 10
Issue Number 1
Page from 25
Page to 34
ISSN 1363-7029
Date Accessioned 2006-01-09
Language en_AU
Faculty Griffith Business School
Subject Macroeconomic Theory
URI http://hdl.handle.net/10072/4623
Publication Type Journal Articles (Refereed Article)
Publication Type Code c1

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