The Viability of Keynesian Demand Management in an Open Economy Context

Abstract

This paper explains why, in an open economy context, Keynes-type demand management policies appear to have lost their ability to create jobs domestically. Instead stimulatory policies tend to create an import deficit (as jobs are created abroad) and the ear of inflation domestically. The paper then suggests remedies that will resurrect Keynes-demand management policies to stimulate expansion without experiencing balance of payment problems or domestic inflation.