Balance–of–Payments Equilibrium and the Determinacy of Interest Rates

Herakles M. Polemarchakis and Matteo Salto

Review of International Economics, 2002, vol. 10, issue 3, 459-468

Abstract: In a world economy of overlapping generations with multiple countries, a competitive equilibrium need not satisfy the condition that the balance of payments be in equilibrium. The requirement that, in addition to market clearing, a balance–of–payments equilibrium condition be satisfied selects Pareto–optimal allocations and guarantees the determinacy of equilibrium.

Date: 2002
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