The Monetary Approach to the Balance of Payments
Essential Concepts and Historical Origins
JACOB A. FRENKEL AND HARRY G. JOHNSON
1 ESSENTIAL CONCEPTS
The main characteristic of the monetary approach to the balance of payments can be summarised in the proposition that the balance of payments is essentially a monetary phenomenon. The term ‘the balance of payments’ refers to items that are ‘below the line’ in the over-all balance of payments (which must balance exactly, by the principles of double-entry accounting); the items in question constitute the ‘money account’. In general, the approach emphasises the budget constraint imposed on the country’s international spending and views the various accounts of the balance of ...
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