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STEADY-STATE REAL EFFECTS OF INFLATION IN A HECKSCHER–OHLIN CASH-IN-ADVANCE MODEL

Published online by Cambridge University Press:  01 November 2004

SHI-FENG CHUANG
SHI-FENG CHUANG
Affiliation:
Tamkang University
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Abstract

This paper explores the possible real effects of inflation within a two-sector neoclassical growth model of the Heckscher–Ohlin type with a cash-in-advance constraint on the purchases of consumption goods. The main findings are that the relative prices of both factors and of both goods, which are linked via a Stolper–Samuelson relation, depend only on the rate of time preference, not on any monetary variable; that the steady-state level of total capital can be influenced by inflation if the capital intensities and the cash requirements in both sectors differ, leading to Tobin effects or reversed Tobin effects; and that higher inflation unambiguously reduces total labor supply and leads to a reversed Tobin effect in most cases if the labor/leisure choice is endogenized.

Keywords

Cash-In-AdvanceHeckscher–Ohlin ModelInflationSteady StateReal Effects
Type
ARTICLES
Information
Macroeconomic Dynamics , Volume 8 , Issue 5 , November 2004 , pp. 633 - 647
Copyright
© 2004 Cambridge University Press

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