The Monetary Approach to the Balance of Payments

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The Monetary Theory of Balance-of-Payments Policies

HARRY G. JOHNSON

While the term ‘the balance of payments’ is often used to refer to particular components of the balance-of-payments account, such as merchandise trade, the current account, or the ‘basic balance’, policy concern about aggregates so defined is a concern about the composition of a country’s international accounts or the structure of its economic relations with the rest of the world. The definition relevant to balance-of-payments policy properly defined and to the corresponding instruments of macroeconomic policy—monetary policy, fiscal policy, exchange-rate policy, and controls on trade and payments imposed for balance-of-payments reasons—is the net resultant inflow or outflow ...