INTERNAL BALANCE, EXTERNAL BALANCE AND RELATIVE SIZE

In a recent contribution to this Journal, Imanuel Wexler and Stephen M. Miller (1975) analyse the appropriate policy measures by which a country can correct an external imbalance while adhering to a predetermined mix of domestic inflation and unemployment. Wexler and Miller concentrate their attention on a case in which the domestic inflation/unemployment target coincides with external defect. They assume that the authorities are willing to tolerate a given inflation/unemployment mix but wish to erradicate the external imbalance. This problem is analysed within the context of two assumptions about the domestic rate of inflation relative to the foreign rate.