Post Keynesian Monetary Theory for an Open Economy

Abstract

First paragraph: Frenkel and Johnson (1977, p. 24) present their theory of the balance of payments as being monetary, rather than "monetarist", on the grounds that it relies on a representation of the demand for money function which is generally accepted by monetary theorists. Indeed, no alternative approach emerged until Davidson (1982), so that some form of "global monetarism" has been embedded in the neoclassical synthesis. While Keynesians in what Coddington (1976) calls the "hydraulic Keynesian" tradition have de-emphasized monetary variables, those classified as Post Keynesians have attempted to revitalize interest in the workings of a monetary economy, emphasizing ability of monetary variables to influence output and employment in both the short run and the long run; central to this approach is the instability of the demand for money. It seems a natural progression (and one advocated by Chick, 1983, pp. 357-358) to extend Keynesian theory to incorporate the monetary effects of economic openness, as an alternative to global monetarism. (Henceforth the terms "Keynesian" and "Post Keynesian" will be used interchangeably).