On the Adequacy or Inadequacy of Keynesian Balance-of-Payments Theory: A Rejoinder
AbstractThis note again refutes Kuska's proposition that equality between the demand for and supply of money ("money market equilibrium") implies equilibriumin the balance of payments.Indeed, under a regime of fixed exchange rates it is precisely the balance of payments deficit or surplus that equilibrates the money market.The refutation of Kuska's proposition does not require anyspecial assumptions about sterilisation policies,it is also established,again contrary to Kuska, that in a two country world with a fixed exchange rate,internationally mobile capital and endogenous interest rates, only one country can independently achieve a money supply target.Failure to distinguish between the change in the money stock and domestic credit expansion appears to be the source of Kuska's erroneous indictment of "Keynesian" balance-of-payments theory.We also establish the conditions under which alternative (ex-ante) balance of payments definitions can be substituted for an asset market equilibrium condition.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1032.
Date of creation: Nov 1982
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in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 233-276
National Bureau of Economic Research, Inc.
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