Problems of Stabilization Policy in an Integrated World Economy*
This chapter is concerned with three subjects: the basic theory of the balance of payments in terms of which stabilization theory is conducted in the contemporary world; the problem of stabilization in a monetary union; and the problem of stabilization in the world economy as a whole. These subjects are related, but are treated in separate sections.
I. THE THEORY OF THE BALANCE OF PAYMENTS
The theory of the balance of payments that has come to be widely accepted by both economic theorists and practical policy-makers derives from the Keynesian revolution and the empirical conditions of the 1930s and owes much to Joan Robinson’s classic essay on foreign exchange and subsequently ...