International Monetary Fund, “Theoretical Aspects of the Design of Fund-Supported Adjustment Programs,” Occasional Paper 55 (Washington: International Monetary Fund (1987).
Khan, Mohsin S., and Peter J. Montiel, “Growth-Oriented Adjustment Programs: A Conceptual Framework,” Staff Papers, International Monetary Fund (Washington), Vol. 36 (June 1989).
Lizondo, J. Saul, and Peter J. Montiel, “Contactionary Devaluation in Developing Countries: An Analytical Overview,” Staff Papers, International Monetary Fund (Washington), Vol. 36 (March 1989).
Jacques J. Polak, a graduate of the University of Amsterdam, has served on the Fund staff as Director of the Research Department and Economic Counsellor and has been a member of the Fund’s Executive Board.
The paper also reads the identity between savings/investment and the current account backwards: it is not that “the real exchange rate appreciation, by creating a current account deficit induces an increased use of foreign savings, which increases investment” (Khan and Montiel (1989, p. 292)); instead, with savings and money holdings determined by income only, more credit creation can only raise investment demand and thus, at full capacity, the current account deficit.
As the paper points out, three versions of an increased supply of savings yield equivalent results. Similarly, as the paper does not point out, the derivatives with respect to changes in velocity turn out to be the same, after some rearranging, as those with respect to a change in credit creation, except for a scale factor; compare equations (24)-(26) with equations (39)-(41), respectively (pp. 292-93 and pp. 299-300).