ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Financial Programming for Stabilisation-Some Notes on IMF Model

Some Notes on IMF Model Ranjit Sau The IMF model of financial programming for stabilisation is based upon the monetary approach to the balance of payments. The model is incomplete as it does not combine a structure of general equilibrium with the fun- damental equation of the monetary approach. In this paper a Keynesian theory of income determination is grafted onto the monetary approach, and the import inducing effect of direct foreign investment is recognised, ft follows that the basic theorem of the monetary approach may get refuted under certain values of the parameters of the complete model. Econometric tests with Indian data reveal that it is quite possible for the IMF strategy to turn counterproductive. There are two parts to the policy model. Empirical evidence indicates the existence of a de- mand function for money, which is only one part. For the other part there are several alternative structures of general equilibrium. Hence the route to stabilisation is not unique. The IMF need not commit itself to a single model. Selection of the optimal model itself is the primary task before the action parameters and performance criteria can be meaningfully derived.

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