This paper provides a framework for addressing the issue of balance of payments adjustments when there are quantitative restrictions on imports. A major objective is to contribute to an understanding of how two key government policy instruments-domestic credit and import restrictions-interact in the determination of the balance of payments in developing countries. The government's decision making on the supply of domestic credit and imports is described by a reaction function derived from minimization of a loss function. An important feature of the model is the symmetric treatment of the demand and supply functions in the imports market. The estimation technique makes it possible to estimate a model for data in which some of the observations for consumer imports are on the domestic authorities' import supply function and some observations are on the private sector's demand function for imports.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics