Swiss Inflation and the Two Versions of the Monetary Approaches to the Balance of Payments

UNCG Author/Contributor (non-UNCG co-authors, if there are any, appear on document)
Stuart D. Allen, Professor (Creator)
The University of North Carolina at Greensboro (UNCG )
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Abstract: The framework for this study is provided by the monetary approach to the balance of payments (MABP) whose major precepts are discussed in Section 1. The Swiss case provides an excellent counterexample to the conclusions which may arise from the MABP and the closely related global monetarist view of world inflation. Therefore, the initial thrust of the paper is to distinguish between a strong version and a weak version of the MABP from the basic assumptions of the monetary approach.1 While the MABP is not a theory of inflation, the two versions of the MABP suggest different trans-mission mechanisms by which world inflation can be transmitted to a small, open country like Switzerland. Empirical results are reported in Section 2 which suggest that excessive monetary growth resulting from balance-of-payments surpluses and a direct price effect were the principle causes of Swiss inflation. Therefore, the strong version of the MABP and the closely related global monetarist approach are incorrect in concluding that international inflation is transmitted by a direct price effect. The question of the appropriate exchange-rate policy for Switzerland and other concluding remarks follow in Section 3.

Additional Information

Atlantic Economic Journal, 8(2), July , 13-19
Language: English
Date: 1980
Swiss, Finance, Money

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