Review of Keynesian Economics

Inconsistency and over-determination in balance-of-payments-constrained growth models: a note*

José Luis Oreiro * *

Keywords: demand-led growth models, real exchange rate, Thomas Palley


The objective of this short note is to re-evaluate the solution given by Palley (2002) for the inconsistency problem in BoP-constrained growth models. I show that once we distinguish the concepts of natural and warranted rates of growth that over-determination problem appears again, requiring the introduction of the level of real exchange rate in the formal structure of BoP models in order to be solved.

Author Notes

The author acknowledges the useful comments of two anonymous referees of Review of Keynesian Economics. The usual disclaimers apply. Financial support of the National Scientific Council (CNPq) is also gratefully acknowledged.

Associate Professor Instituto de Economia, Universidade Federal do Rio de Janeiro, Brazil, Level IB Researcher at National Scientific Council (CNPq), and President of Brazilian Keynesian Association. Email:

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