The Austrian-Australian Approach (AAA) to Internal and External Stability

Internal stability is associated with price stability and can also be called ‘internal equilibrium’. As employment is not the issue here for the sake of simplicity it will be assumed that full employment exists within a classical quantity-theoretical model. External stability coincides with the traditional notion of ‘external equilibrium’ and will be interpreted either in the form of an equilibrated trade balance or an equilibrated current account balance for a net debtor country whose interest payments require a trade balance surplus. External stability could also be conceived as a ‘sustainable’ current account deficit that is financed by ‘sustainable’ capital inflows.1