Balance of Payments Dynamics Under Fixed Floating

This paper studies the dynamics of the balance of payments in response to policy disturbances under the assumption that the central bank devalues the country's currency over time at a constant preannounced rate. Depending on the model parameters, a given distribution may result in qualitatively different short-run balance of payments behaviour. In each case, however, the adjustment process leads the economy to a stable long-run equilibrium provided the government finances its spending according to a certain set of rules.