The Two Monetary Approaches to the Balance of Payments Keynesian and Johnsonian
26 Pages Posted: 15 Feb 2006
Date Written: August 2001
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
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