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The Monetary Approach to the Balance of Payments (Collected Works of Harry Johnson) by Harry G. Johnson, Jacob A. Frenkel

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III. FURTHER DEVELOPMENTS

4

The International Distribution of Money in a Growing World Economy1

ROBERT A. MUNDELL

The purpose of this chapter is to analyse the conditions of world monetary equilibrium in a comprehensive bi-country framework that links inflation, interest rates, money stocks, rates of credit expansion, and the balance of payments in a growing world.

THE CONDITIONS OF MONETARY EQUILIBRIUM

The model we shall use for this purpose2 requires balance in two markets: a market for claims against money and a market for capital against money. It assumes that in making the choice between holding money, claims, and capital the typical investor balances expected yields on each asset, where expectations are based on an extrapolation of current ...

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