Short-Run Data and Long-Run Theories: Testing the Monetary Approach to the Balance of Payments
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Short-Run Data and Long-Run Theories: Testing the Monetary Approach to the Balance of Payments
Credit and Capital Markets – Kredit und Kapital, Vol. 18 (1985), Iss. 2 : pp. 204–216
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Emmanuel Petoussis, Athen
References
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Abstract
Short-Run Data and Long-Run Theories: Testing the Monetary Approach to the Balance of Payments
This paper concentrates on the methodology of the tests of the monetary approach to the balance of payments. The problems of conventional tests are attributed to the imposition oflong-run assumptions ona short-run setting. A broader analytical framework is suggested where all sources of disturbance of the private sector’s stock equilibrium are taken into account so that foreign reserves and domestic credit can be usefully redefined for empirical purposes. This framework is put into the appropriate macroeconomic- modelling context by studying the underlying adjustment processes within a disequilibrium analysis that considers the feedbacks between money supply and money demand.