Acta Oeconomica 41. (1989)
1989 / 3-4. szám - Erdős Tibor: Wanted: A Well Founded Economic Policy - Problems of External and Internal Equilibrium, Economic Growth and Inflation
Acta Oeconomica, Vol. 41 ($~4)> VV- 359-376 (1989) WANTED: A WELL FOUNDED ECONOMIC POLICY—PROBLEMS OF EXTERNAL AND INTERNAL EQUILIBRIUM, ECONOMIC GROWTH AND INFLATION T. ERDŐS Analysing the system of interrelations between external and domestic equilibrium, the author shows that in the case of reducing the deficit of the balance of payments in Hungary the budget deficit should be reduced. The author analyses the inflationary impact of the reduction of subsidies and shows that the latter causes inflation mainly because of the inelastic adjustment of the economy. The article discusses some topical problems of monetary regulation: can the changes in the velocity of money make the regulation of money supply ineffective in Hungary, is the interest rate policy of the central bank correct, can monetary regulation be made more effective? The author makes critical remarks on the ideas advocating a strong devaluation of the Hungarian currency. External and internal equilibrium One of the tasks of central importance in the next three years is to gradually establish external and internal equilibrium. By external equilibrium I mean that the growth of foreign debts should stop—namely, the surplus of export and import of goods and services should reach the sum of interest payments abroad. For the sake of simplification I assume that the balance of export and import of goods and commodities accounted in roubles will in fact be balanced. In other words, the stock of Hungarian claims will not grow any further on this market (this may be formulated as a minimum requirement). Following the above, I am going to concentrate on the balance of export and import of goods and services accounted in convertible currencies and examine the domestic conditions of attaining an adequate surplus. The balance of the export and import of goods and services indicates the relationship, at current prices, between domestic (productive and personal) consumption and the national performance. A surplus will show that domestic consumption is smaller than the national performance brought about in the form of goods and services. A change in this balance will show the changes between domestic consumption and the national performance, both at current prices. The changes will not be illustrated in terms of volume, since the latter is significantly influenced by changes in the terms of trade. (If terms of trade deteriorate, the difference between national performance and domestic consumption will be greater in terms of volume than at current prices.) It should separately be stressed that, since the balance of exports and imports of goods and services reflects the ratio between national Acta Oeconomica it, 1989 Akadémiai Kiadó, Budapest