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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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8

Tariffs and the Balance of Payments1

A Monetary Approach

MICHAEL MUSSA2

INTRODUCTION

The purpose of this chapter is two-fold: firstly, to expound the basic features of the ‘monetary approach’ to the balance of payments; secondly, to provide a specific example of the monetary approach by analysing the effects of a tariff on the balance of payments. The exposition of the basic features of the monetary approach will emphasise general principles rather than specific models and specific results. At this level of generality, it will be argued that a monetary approach is essential for sensible discussion of the behaviour of the balance of payments. The analysis of the effects of a tariff will use a specific, formal model. The results will depend on ...

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