TITLE

INTEREST RATE POLICY AND EXTERNAL BALANCE

AUTHOR(S)
Willett, Thomas D.; Forte, Francesco
PUB. DATE
May 1969
SOURCE
Quarterly Journal of Economics;May69, Vol. 83 Issue 2, p242
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
The article investigates the degree of independence between the influences of monetary and fiscal policy in the balance of payments in the U.S. A basic tenet of the theory of economic policy developed in the postwar period is that, in general, a necessary requirement for the attainment of a number of policy goals is the availability of at least an equal number of independent policy weapons. As goods are consumed they are replaced by additional purchases from the original source so that the current account of the balance of payments is a function of the levels of prices. On the other hand, capital in the sense of waiting or purchasing power over goods and services is conserved. It is lent, not sold and is thus not, in general, consumed over time. If the size of portfolios remains constant, a given configuration of interest rates would determine the allocation of this existing stock, not a continuing flow. A change in interest rates would dictate only a transitional flow of capital as stocks were allocated. Hence, from the point of view of comparative statics, with constant portfolio size, interest rate changes would not affect the financial capital account of the balance of payments.
ACCESSION #
4624260

 

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