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Vertically Integrated North–South Trade and the Redux Model
Author(s) -
GarciaCebro Juan Antonio,
VarelaSantamaria Ramon
Publication year - 2004
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2004.00472.x
Subject(s) - economics , monopolistic competition , redux , welfare , currency , monetary economics , context (archaeology) , exchange rate , shock (circulatory) , consumption (sociology) , distortion (music) , microeconomics , market economy , medicine , paleontology , social science , amplifier , cmos , electronic engineering , sociology , engineering , biology , monopoly , aerospace engineering
The paper uses the framework of Obstfeld and Rogoff's Redux model to study the impact of monetary shocks on exchange rate, terms of trade, and welfare in the context of a North–South trade. The authors show that a relative Northern monetary expansion can depreciate or appreciate its currency depending on whether the consumption elasticity of money demand and the degree of monopolistic distortion are low or high enough. This shock has asymmetric effects on welfare in such a way that “beggar‐thyself” or “beggar‐thy‐neighbor” effects always occur.