The Two Monetary Approaches to the Balance of Payments Keynesian and Johnsonian

Abstract

This paper emphasizes the distinction between two `monetary approaches to the balance of payments`, one developed in the IMF, the other under the leadership of Harry Johnson in Chicago. The IMF approach is presented as an evolutionary development of the Kahn/Keynes multiplier model in an open economy. Johnson`s approach is anti-Keynesian and self-proclaimed revolutionary. It posits the `essentially monetary character` of the balance of payments. The IMF model tests satisfactorily as an explanation of income and imports over time. The long-run equilibrium approach of the Chicago model precludes statistical testing, and its short-run tests prove statistically meaningless.

Keywords: Monetary approach to the balance of payments monetarism IMF

JEL Classification: B-22 B-31 C-51 E-12 E-51 F-40