Monetary Approach to the Balance of Payments: A Moroccan Case Study

Abstract

The IMF has always promoted the theories of external adjustment. These theories were inspired by the work of J.Polak who first came up with the Monetary Approach to the Balance of Payments in 1957. In this approach, the balance of payments imbalances are related to excess: the model allows calculating a compatible amount of credit with a fixed target of external reserves. It is based on two assumptions: the constant money demand related to the income and the exogenous nature of the money supply resulting to an autonomous decision of the monetary authorities which fixes the internal component of currency level. An external imbalance is therefore only the symptom of a deeper evil, of monetary origin.

In this paper, the Polak model will be applied on the variables of the Moroccan economy and study the results generated from the adjustment through the monetary balance of payments approach on its deficit.