The Balance of Payments of Trinidad and Tobago 1973–1983: A Monetary Phenomenon?

Abstract

The monetary approach to the balance of payments accords a very important role to monetary variables in the determination of reserve flows; (see Johnson, 1977). It postulates that the reserve flows will increase (decrease) if the residents of a country desire to accumulate (deplete) money balances faster than the rate at which the money stock is growing (diminishing) as a consequence of purely domestic influences. In other words, reserve flows are the mechanism through which money demand and supply are brought into equilibrium, and the model predicts in particular that these flows are negatively related to the rate of domestic credit expansion. A most important policy implication of this approach is that the monetary authorities can influence the level of foreign reserves by acting upon the composition of the monetary base through deliberate and meaningful credit policies. Devaluation of the currency, on the other hand, will have little or no effect on the flow of these reserves; (see Frenkel and Johnson, 1976, Chapter 1).

Citation

Kent Watson, P. (1988), "The Balance of Payments of Trinidad and Tobago 1973–1983: A Monetary Phenomenon?", Journal of Economic Studies, Vol. 15 No. 1, pp. 19-31. https://doi.org/10.1108/eb002662