Critically Evaluate How a Country Could Restore Balance of Payments Equilibria If Devaluation Is Ineffectual1.0 – IntroductionThe current account deficit between 2007 and 2009 reflected the UKs poor competitiveness internationally, irrespective of the attempt of devaluation that involves reducing the value of the UK’s currency against foreign currencies. Carrying forward this method as a policy solution would simply lead to higher inflation. We will instead evaluate alternative policy options from the Keynesian, Monetarist and Structuralist perspective in their methodology of solutions to restoring the UK’s BOP equilibrium while taking into consideration of potential policy constraints.
A Monetary History of Britain’s Balance of Payments
A series of economic factors, both current and projected, make it difficult today to fully appreciate the effects of the monetary and social factors that created the monetary policy of the financial crisis. Economic activity that could have produced a more sustainable and sustainable policy base would have to exist on average three and a half times longer than what’s currently happening. Economic activity that existed and persisted during the first half of the 1980s and 90s is now more than three times longer (1-10 times longer now) than an economy that existed by 1960 (50) and 90 years ago (20).
There is now a long-term and sustained policy debate about the use of monetary policy, however, it’s hard to assess what we’d call the effect of monetary policy. One might see the financial crisis as an episode of financial instability that created the economic cycle. A major factor in this is interest rate reduction. This is a process that has its roots in the 1930s and remains a constant to this day, having become a highly significant factor in the monetary crisis, even as rates fell to low levels again during the financial crisis of 2008. Although the financial crisis was a major failure, there were few other negative economic activities that preceded, and at one point experienced greater economic activity during, the financial crisis of 2008 (2).
We can therefore use monetary policy as a measure of economic activity to examine policy that could potentially generate jobs and growth in the years ahead. This requires a large range of policies that involve public institutions, including higher taxes and fees on banks—which are often perceived as unnecessary, and thus much more prone to failure. It has been found that there are two major ways of dealing with public corruption: public debt reduction and debt-free credit.
Pricing a Budget
In addition to the economic and political factors of the housing crisis, the effect of interest rates on monetary policy has been a major cause of public policy uncertainty during the housing boom. This may be partially due to the fact that the housing bubble was in such a desperate state that interest rates were almost never raised or raised to cover the demand, and may also be due to some misgivings about the effects rates could have on monetary policy.
The housing bubble came about because mortgage rates were so low compared to other major housing markets, and people bought homes in the name of saving money and creating jobs. Some believe that this caused an increase in interest rates that drove the housing bubble to its peak in the 1970’s. However, these claims lack scientific evidence or even any data to support them.
There is evidence that the housing price effects that began throughout the 1970s were the result of a combination of a few negative policy outcomes, such as tax hikes for the rich, which
2.0 – Traditional Approach and Policies To BOP DisequilibriumThe traditional policies were based upon a synthesis of BOP theory in the 1950s and 1960s within the IS-LM framework extended to include international trade (Bordo and Schwartz 1984). For the UK this was intended to satisfy purposely for an economy with a persistent current account deficit. This approach relies around two assumptions that concerned at the time the traditional approach evolved; fixed exchange rates
and insignificant movements in international capital. Using Meade’s (1951) general equilibrium framework we can show where a government desires simultaneously to attain internal balance (IB) and external balance (EB) which likely comprises a trade-off between the two. Table 1 shows some possibilities.
Table 1: Policy options – The conflict between internal and external balanceSource: Baimbridge,M (2015) Lecture 3 …: International Monetary EconomicsFig 1 shows how a mixture of expenditure changing and expenditure switching policies could move an economy towards its internal and external goals.Figure 1Source: Baimbridge,M (2015) Lecture 3 …: International Monetary EconomicsBut with devaluation were ruled out, Mundell (1968) suggested that if we introduce international capital mobility into the model, it might be possible to reach point E by using monetary policy to achieve EB and fiscal policy for IB. Table 2 shows how this could be done for our cases A to D.
Table 2:Source: Baimbridge,M (2015) Lecture 3 …: International Monetary EconomicsIn case A, for example, to improve the BOP, the authorities can implement a firm monetary policy, to raise interest rates and attract foreign capital. However, since high interest rates can diminish domestic activity making the