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INFLATION AND PATTERN OF TRADE IN A DYNAMIC SPECIFIC-FACTORS MODEL WITH MONEY

Published online by Cambridge University Press:  28 April 2005

SHI-FENG CHUANG ,
TEH-MING HUO  and
PO-SHENG LIN
SHI-FENG CHUANG
Affiliation:
Tamkang University
TEH-MING HUO
Affiliation:
National Chengchi University
PO-SHENG LIN
Affiliation:
National Chengchi University
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Abstract

This paper presents a dynamic specific-factors model with money introduced through a cash-in-advance constraint. Two types of consumption goods are produced, and three types of factors—labor, capital, and land—are used. The cash-in-advance constraint is imposed on different sets of goods. When the constraint is imposed exclusive of the investment, inflation affects the pattern (and volume) of trade through a commodity-substitution effect. When the constraint is imposed inclusive of the investment, inflation may affect the pattern of trade through both the commodity-substitution effect and the factor-supply effect. In each case, we examine and prove the dynamic stability property of the steady-state equilibrium.

Keywords

Cash in AdvanceDynamic Specific-Factors ModelInflationPattern of Trade
Type
ARTICLES
Information
Macroeconomic Dynamics , Volume 9 , Issue 3 , June 2005 , pp. 358 - 371
Copyright
© 2005 Cambridge University Press

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