Summary and Conclusion
The paper has discussed the distinction between a strong and a weak version of the MBOP first made by Rabin and Yeager. Empirical evidence has been provided to refute the strong version of the MBOP and the closely related global monetarist school of thought contention that the law of one price is the major conduit through which worldwide inflation is transmitted. Switzerland provides a case of a country which imported inflation via both a direct price effect from abroad and continuous balance-of-payments surpluses. The evidence does not explicitly confirm the weak version of the MBOP because it is not a theory of worldwide inflation. The evidence does suggest that there are at least two transmission mechanisms for worldwide inflation. Economists should be careful not to interpret the MBOP as a unicausal theory of world inflation.
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Allen, S.D. Swiss inflation and the two versions of the monetary approaches to the balance of payments. Atlantic Economic Journal 8, 13–19 (1980). https://doi.org/10.1007/BF02299859
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DOI: https://doi.org/10.1007/BF02299859