Since the early 1950s, economists and policymakers have been increasingly preoccupied with the problems of inflation and balance of payments disequilibria. Their preoccupation has led to new approaches to monetary analysis.1 In this period, there has been a gradual evolution of the so-called monetary approach to the balance of payments, the third major approach; the two best-known earlier approaches are the elasticity (neoclassical) approach and the income absorption (neo-Keynesian) approach.2