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Working Paper

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In this paper, I analyze financial programs of the types adopted in the U.K., U.S.A., and in many developing countries under the auspices of the International Monetary Fund. I show that such a program has the effect of stabilizing the relevant macroeconomic system, as to be expected following a result established by Tobin and Buiter (1976). Additionally, I show that when budget deficit and monetary targets are pursued the government must choose at least two policy variables endogenously. I find support for these results in the macroeconomic performances of the U.K. economy in the 1980s. I also examine the effects of changes in certain policies on the steady state values and on the values along the transition path to such a state.