ABSTRACT
Applications of intertemporal general equilibrium analysis have become increasingly popular in international macroeconomics. The analysis of raw material or input shocks is something to which the traditional tools in the area, like the Mundell-Fleming framework and the Monetary Approach, being designed to deal with other problems, are not very well suited. If one wants to incorporate resource allocation effects such as those mentioned above, an application of general equilibrium analysis seems important, if not indispensable. The intertemporal aspects of the problem, on the other hand, notably the responses of private saving and investment and government borrowing, are important for analysing the process of balance of payments adjustment. An advantage of general equilibrium is that it presents macroeconomic adjustment in a framework which is explicitly consistent with private optimizing behaviour; if a welfare analysis is required, this approach makes it much easier to arrive at precise results.
