Polak model

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The Polak model is a

The Polak Model is based on the following four equations:

${\displaystyle M_{d}v=Y}$

${\displaystyle Z=mY}$

${\displaystyle \Delta M_{s}=\Delta R+\Delta DC}$

${\displaystyle \Delta R=X-Z+\Delta F}$

Where ${\displaystyle M_{d}}$ is the demand for money, ${\displaystyle v}$ is the velocity of money (here considered constant), ${\displaystyle Y}$ is the

, ${\displaystyle Z}$ is the , ${\displaystyle m}$ is the marginal propensity to import, ${\displaystyle M_{s}}$ is the money supply, ${\displaystyle R}$ is the amount of , ${\displaystyle DC}$ is the Domestic Credit, ${\displaystyle X}$ is , and ${\displaystyle F}$ are other net flows.

In the model the following variables are seen as

Real Output

${\displaystyle (Y)}$,

Exports

${\displaystyle (X)}$, other

foreign currency

inflows ${\displaystyle (\Delta F)}$ ${\displaystyle \Delta F=NTR-INT-\Delta NFA}$.

They have to be projected during the IMF Financial Programming exercise in order to set the desired levels for the target variables which are:

Level of International Reserves

${\displaystyle (R)}$ Inflation, of change in price for the domestic sector ${\displaystyle (\Delta P_{d})}$ and, extended to the private sector ${\displaystyle (\Delta DC_{p})}$.

The model also assumes that sooner or later the market will clear meaning that

will equal, or:

${\displaystyle \Delta M_{d}=\Delta M_{s}}$

See also

• Mundell–Fleming model
• Marshall–Lerner condition

References

Further reading

• Polak, J. J., (1957), Monetary Analysis of Income Formation and Payments Problems, IMF Staff Papers, 6, issue 1, p. 1-50.
• Mohsin S. Khan and Peter J. Montiel, A Marriage between Fund and Bank Models? Reply to Polak,IMF Staff Papers, Vol. 37, No. 1 (Mar., 1990), pp. 187–191