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On Monetary Expansion, Terms of Trade and Economic Growth*
Author(s) -
SHIEH YEUNGNAN
Publication year - 1984
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1984.tb00845.x
Subject(s) - economics , monetary economics , comparative statics , capital intensity , capital (architecture) , currency , consumption (sociology) , investment (military) , production (economics) , international economics , macroeconomics , market economy , human capital , archaeology , sociology , politics , political science , law , history , social science
In a recent paper Roberts (1978) has extended Ramanathan's model (1975) to a two‐sector, two‐currency and two‐country neoclassical growth model with flexible exchange rates. Under the assumption that the consumption good is relatively capital intensive, Roberts obtains two important propositions: an increase in domestic monetary expansion will increase the domestic overall capital intensity, decrease the foreign overall capital intensity, and worsen the terms of trade for the country importing the investment good; an increase in domestic monetary expansion may increase or decrease the level of trade. In this paper, we add to and generalize these results by using a simple yet thorough comparative statics analysis without the factor intensity condition. 1 It will be seen that the complexity and ambiguity of Roberts' results are substantially reduced.