ABSTRACT
“Equilibrium” in the balance of payments (defined as a zero reserve money flow without restriction on external transactions) has been widely accepted as an appropriate objective of monetary policy in economies under the fixed exchange-rate system. Eminent examples can be found in the Keynesian (or Meade-Tinbergen-Mundellian) policy mix literature, in which balance-of-payments equilibrium is usually chosen as one of the prime policy objectives. 1 Also in empirical studies of reaction functions of monetary authorities (endogenous monetary policy), a balance-of-payments target is often included as a policy aim representing an external goal, even without firm evidence of a correlation between various indicators of the thrust of monetary policy and the balance of payments. 2
