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Empirical results validate the hypothesis that domestic credit expansion impacts the balance of payments.
The monetary approach to the balance of payments (BOP) takes the view that domestic credit is exogenous to BOP and that it is deteriorated by the excess money, which results from domestic credit expansion. This article determines whether in fact the assertion is true. Utilizing the method developed by Grange and Sims, evidence lends validity to the hypothesis.
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Sagrario L. Floro (1987) studied this question.
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