Stabilization of the Balance of Payments in a Small, Planned Economy, with an Application to Ethiopia

We construct a macroeconomic model of a planned economy and derive a currency basket that will stabilize the current account. The exchange rate is incorporated in a monetary system so as to derive consistent money and price targets. If the planners have access to foreign loans, they may target a negative current account. The model is estimated for Ethiopia. Having derived weights for the currency basket corresponding to 1980, a simulation is carried out in which macroeconomic targets for 1980 are derived, based on past information