Balance of Payments Adjustment: Macro Facets of by Augustine C. Arize, Theologos H. Bonitsis, Ioannis

By Augustine C. Arize, Theologos H. Bonitsis, Ioannis Kallianiotis, Krishna Kasibhatla, John Malindretos

A close research of the 2 methods, financial and conventional Keynesian, to overseas adjustment and stability of funds.

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If Br is very large (which signifies that capital is highly interest sensitive, or mobile), {(sAh Ϫ vBr)2 Ϫ 4sv(AhBr Ϫ ArBh)} Ͻ 0. Alternatively, if Br ϭ 0 and s/v Ͼ 4(Ar/ Ah), we still will have {(sAh Ϫ vBr)2 Ϫ 4sv(AhBr Ϫ ArBh)} Ͼ 0, and hence, the asymptotitic convergence to equilibrium. More complicated adjustment mechanisms and more sophisticated macroeconomic structures can be envisaged, and more complicated analytical results can be derived. In this chapter, we have offered a basic analysis with a unifying approach to an open economic picture where policy makers are seeking guidelines for achieving full employment with price stability and balance of payments equilibrium.

There are two versions of this assumption: movement toward PPP and changes in relative prices among countries. In the first version, given sufficient time for adjustment (and abstracting from transportation costs), all internationally traded goods will have the same price. Under the second version, relative price changes among competing countries is not possible; either the price of a devaluing nation will rise or foreign prices will decline until prices are fully equalized internationally. Specifically, competitive forces will quickly and directly eliminate changes in relative prices stemming from exchange rate changes by offsetting changes in domestic prices.

It must be noted that this piece heavily draws on the work of Jones (1968) and Mundell (1960, 1962) for their clarifying paradigms for this research. 1. For further details on the literature, some of the other studies listed in the references should be examined. 2. Since foreign national income and interest rate are not within the control of the domestic policy makers, we consider them as given parameters. REFERENCES Fleming, J. M. ’’ International Monetary Fund Staff Papers, 9 (1962): 369–379.

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