Chapter 14

The Monetary Approach

Abstract

The monetary approach to open-economy macroeconomics emphasizes the determinants of money demand and money supply. The monetary approach can be analyzed separately for fixed and floating exchange rates. If the exchange rate is fixed then the monetary approach pertains to the balance of payments, and in such a case the approach is called the Monetary Approach to Balance of Payments. In contrast, if exchange rates are floating then the approach explains exchange rate movements and is called the Monetary Approach to Exchange Rates. Both approaches are discussed thoroughly in this chapter, beginning with basic concepts and assumptions and also addressing the policy implications of these models. Sterilization, ...

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