Target Compatibility and International Co-operation

Abstract

The aggregate theory of international payments adjustment allows for the possibility that nations will deliberately strive to have nonzero basic balances. The concept of a payments goal that is either positive or negative can derive from the desire of a nation to finance a deficit considered temporary or to avoid adjustment in the face of a surplus that will not last. Another reason for having a non-zero payments target is that national authorities are deliberately using the international sector to help in the achievement of domestic, macroeconomic goals (see Chapter 4, pp. 64–8). The short-run theory requires that nations be prepared to adjust their balance-of-payments policies to meet many different kinds of disturbance — real or monetary and shift, trend or reversing — of varying magnitudes at irregular intervals. National authorities will be always trying to reconcile any differences between forecast and target international balances.