Journal or Book Title
The American Economic Review
First Page or Article ID Number
The emergence of the portfolio balance approach 1 has led to a reformulation of the causes of balance-of-trade and payments disequilibria. According to this approach, balance-of-trade deficits and surpluses reflect discrepancies between desired and actual wealth holdings; while balance-of payments deficits and surpluses reflect discrepancies between desired and actual money holdings. Thus, balance-of-trade and payments disequilibria are viewed as representing disequilibria within the asset markets. Using this framework several authors2 have examined the self-correcting nature of disequilibria within the balance of-payments accounts and the ability of a devaluation to reduce the magnitude of a disequilibrium.
American Economic Association
Lapan, Harvey and Enders, Walter, "Devaluation, Wealth Effects, and Relative Prices" (1978). Economics Publications. 152.