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Devaluation, Capital Mobility, and Long‐Run Equilibrium *
Author(s) -
TAKAYAMA AKIRA,
ANDERSON RICHARD K.
Publication year - 1978
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1978.tb01637.x
Subject(s) - devaluation , economics , short run , balance of payments , monetary economics , capital (architecture) , current account , exchange rate , archaeology , history
The paper considers a small, fully employed economy with non‐tradeables, securities, and money. The paper first analyzes the effects of devaluation and financial controls in the short‐run equilibrium on the trade balance, the capital account, and the overall balance of payments. Disequilibria in the capital account and the overall balance of payments cause changes in the stock of securities and money, shifting the short‐run equilibrium. The paper investigates the condition for the‐ uniqueness and stability of the long‐run equilibrium under this adjustment process (‘specie flow mechanism’). Finally, the long‐run equilibrium effects of devaluation and monetary policies are examined.