Decision rules for stabilization policy in an open economy are examined under alternative specifications of the balance of payments. In particular, distinction between interest-sensitive debt capital and equity capital which responds to an activity variable alters the comparative static properties of instrument assignment. Various aspects of dynamic adjustment are further investigated in a context in which time is endogenous and in which the decision process minimizes a criterion function. It is shown that traditional one-to-one pairing of targets and controls may be inferior to assignment of clusters of instruments to some targets for specified time intervals.
© 1973 The University of Chicago Press
Arndt, Sven W. 1973. Policy Choices in an Open Economy: Some Dynamic Considerations. Journal of Political Economy, LXXXI: 916-935.