1. THE ESTIMATION OF THE COST OF ADJUSTMENT TO EXTERNAL DISEQUILIBRIA.
- Author
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Hipple, F. Steb
- Subjects
ECONOMIC demand ,ECONOMIC equilibrium ,RESERVES (Accounting) ,ESTIMATION theory ,STOCHASTIC approximation ,ECONOMIC policy ,BALANCE of payments ,BALANCE of trade - Abstract
The article presents the estimation of the cost of adjustment to external disequilibria. The stability of an economy may be upset by disequilibria in the commercial and financial relationships between the domestic economy and the economies of other nations. These disequilibria will either be stochastic or structural in nature. The cost of adjustment to stochastic disequilibria may be defined as the change in national income required to alter temporarily the balance of payments by one monetary unit, there by offsetting the disequilibrium by one monetary unit. That is, the cost of adjustment A is a ratio A=dV/dQ. On an a priori basis, the cost of adjustment f under expenditure changing policies can be quantified as the reciprocal of the marginal propensity to import m. In the context of the above discussion the A Model of Reverse Demand. In general form, the demand for reserves can be written as E(R)
* =R[Q,H,A,W] RQ 0,RH <0,RA >0,RW >0.- Published
- 1974
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