Interpreting Polak: Monetary analysis in ‘dependent’ economies

The Polak model is ordinarily considered to be a quantity theory view of the world, in which the level of income is determined by changes in the stock of money. This interpretation is not warranted by close examination of the model, which can equally well be interpreted as a purely Keynesian framework for income determination, modified to reflect the particular characteristics of an open, developing economy. And because of these modifications, the Polak model leads to policy conclusions quite distinct from either of the standard macro theories.