IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/1032.html
   My bibliography  Save this paper

On the Adequacy or Inadequacy of Keynesian Balance-of-Payments Theory: A Rejoinder

Author

Listed:
  • Willem H. Buiter
  • Jonathan Eaton

Abstract

This 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.

Suggested Citation

  • Willem H. Buiter & Jonathan Eaton, 1982. "On the Adequacy or Inadequacy of Keynesian Balance-of-Payments Theory: A Rejoinder," NBER Working Papers 1032, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1032
    Note: ITI IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w1032.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Miller, Norman C, 1981. "Keynesian Balance of Payments Models: Comment [On the Almost Total Inadequacy of Keynesian Balance-of-Payments Theory]," American Economic Review, American Economic Association, vol. 71(4), pages 778-783, September.
    2. Rudiger Dornbusch & Jacob A. Frenkel, 1984. "The Gold Standard and the Bank of England in the Crisis of 1847," NBER Chapters, in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 233-276, National Bureau of Economic Research, Inc.
    3. Frenkel, Jacob A. & Rodriguez, Carlos A., 1980. "Exchange Rate Dynamics and Overshooting Hypothesis," Foerder Institute for Economic Research Working Papers 275323, Tel-Aviv University > Foerder Institute for Economic Research.
    4. William H. Branson, 1970. "Monetary Policy and the New View of International Capital Movements," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(2), pages 235-270.
    5. Turnovsky, Stephen J., 1976. "The dynamics of fiscal policy in an open economy," Journal of International Economics, Elsevier, vol. 6(2), pages 115-142, May.
    6. Kuska, Edward A, 1978. "On the Almost Total Inadequacy of Keynesian Balance-of-Payments Theory," American Economic Review, American Economic Association, vol. 68(4), pages 659-670, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Frenkel, Jacob A. & Mussa, Michael L., 1985. "Asset markets, exchange rates and the balance of payments," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 14, pages 679-747, Elsevier.
    2. Martin Feldstein, 1991. "Domestic Saving and International Capital Movements in the Long Run and the Short Run," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 331-353, National Bureau of Economic Research, Inc.
    3. Papazoglou, Christos & Pentecost, Eric J., 2004. "The dynamic adjustment of a transition economy in the early stages of transformation," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 547-561, September.
    4. Bordo, Michael D., 1986. "Explorations in monetary history: A survey of the literature," Explorations in Economic History, Elsevier, vol. 23(4), pages 339-415, October.
    5. Godfrey Marozva & Patricia Lindelwa Makoni, 2021. "The nexus between bond liquidity, stock liquidity and foreign portfolio investment," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 10(3), pages 92-103, July.
    6. Buiter, Willem H. & Miller, Marcus, 1980. "Monetary Policy And International Competitiveness," Economic Research Papers 269135, University of Warwick - Department of Economics.
    7. Patrick K. O’Brien & Nuno Palma, 2019. "Danger To The Old Lady Of Threadneedle Street? The Bank Restriction Act And The Regime Shift To Paper Money, 1797-18211," Working Papers 0082, Utrecht University, Centre for Global Economic History.
    8. Oscar Bajo-Rubio & Simón Sosvilla Rivero, 1993. "Teorías del tipo de cambio: una panorámica," Documentos de Trabajo del ICAE 9307, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    9. William Marois & Dominique Lacoue-Labarthe, 1979. "La théorie financière des mouvements internationaux de capitaux à court terme," Revue Économique, Programme National Persée, vol. 30(4), pages 612-649.
    10. Rodriguez, Carlos Alfredo, 1991. "The macroeconomics of the public sector deficit : the case of Argentina," Policy Research Working Paper Series 632, The World Bank.
    11. Rodriguez, Carlos Alfredo, 1989. "The external effects of public sector deficits," Policy Research Working Paper Series 299, The World Bank.
    12. Patrick K O'Brien & Nuno Palma, 2020. "Danger to the Old Lady of Threadneedle Street? The Bank Restriction Act and the regime shift to paper money, 1797–1821," European Review of Economic History, European Historical Economics Society, vol. 24(2), pages 390-426.
    13. Mr. Jacob A. Frenkel & Mr. Guillermo Calvo, 1991. "From Centrally-Planned to Market Economies: The Road from CPE to PCPE," IMF Working Papers 1991/017, International Monetary Fund.
    14. Markus K. Brunnermeier & Isabel Schnabel, 2014. "Bubbles and Central Banks: Historical Perspectives," Working Papers 1411, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 31 Oct 2014.
    15. Papell, David H., 1984. "Activist monetary policy and exchange-rate overshooting: The Deutsche mark/dollar rate," Journal of International Money and Finance, Elsevier, vol. 3(3), pages 293-310, December.
    16. Davis, George K. & Miller, Norman C., 1996. "Exchange rate mean reversion from real shocks within an intertemporal equilibrium model," Journal of International Money and Finance, Elsevier, vol. 15(6), pages 947-967, December.
    17. Goldberg, Michael D., 2000. "On empirical exchange rate models: what does a rejection of the symmetry restriction on short-run interest rates mean?," Journal of International Money and Finance, Elsevier, vol. 19(5), pages 673-688, October.
    18. Klausinger, Hansjörg, 2000. "Walras' law and the IS-LM model. A tale of progress and regress," Department of Economics Working Paper Series 69, WU Vienna University of Economics and Business.
    19. Miller, Victoria, 1996. "Speculative currency attacks with endogenously induced commercial bank crises," Journal of International Money and Finance, Elsevier, vol. 15(3), pages 383-403, June.
    20. Chu, Quentin C. & Ding, David K. & Pyun, C. S., 1997. "The opening price behavior: Foreign exchange futures market versus equity market," International Review of Financial Analysis, Elsevier, vol. 6(1), pages 21-35.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1032. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.