fundamental disequilibrium

fundamental disequilibrium

a situation under a FIXED EXCHANGE RATE SYSTEM where a country is in a position of persistent (long-run) BALANCE OF PAYMENTS deficit or surplus at a particular (fixed) exchange rate against other countries. The only practical course of action, given the inadequacy of internal measures such as DEFLATION and REFLATION to remedy the situation, is a DEVALUATION to a lower exchange rate value to eliminate a deficit, and a REVALUATION to a higher exchange rate value to eliminate a surplus. See BALANCE OF PAYMENTS EQUILIBRIUM, INTERNAL-EXTERNAL BALANCE MODEL.
References in periodicals archive ?
If the US dollar needs to devalue because of fundamental disequilibrium in the US economy, the problems cannot be fixed by lowering the dollar's value alone.
The other type of model is based on a self-fulfilling prophecy emphasizing that speculative attacks do not have to come with fundamental disequilibrium [Flood and Marion, 1996].
Ghosh presented a theoretical framework to explain the persistent fall of the Mexican peso during 1976-82 and how that triggered a real and fundamental disequilibrium.
15) For nonreserve currency countries, the rule was to maintain fixed parities, except in the contingency of a fundamental disequilibrium in the balance of payments, and to use monetary and fiscal policy to smooth out short-run disturbances.

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