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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.

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