Money, the balance of payments and economic policy

Abstract

This paper suggests the use of redefined base money, including potential base money hidden in net foreign assets of commercial banks. As a result the link with the balance of payments becomes perfectly clear. Then it is shown that redefined base money might be an important determining factor for monetary aggregates in the cases of Germany, Japan, the Netherlands, the UK and the US. Next this paper deals with the policy implications of the impact made by the monetary effects of the balance of payments on the economy. This is done for the Dutch case using the buffer stock approach of money as a suitable theoretical starting-point. Monetary and fiscal policy are also discussed.

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