International Transmission of Monetary Shocks in a Ricardian World

Wenli Cheng and Dingsheng Zhang

No 17-10, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: This paper investigates how monetary shocks are transmitted internationally. It shows that where a national currency is used as an international medium of exchange, the international money is non-neutral. In particular, an increase in the supply of international money leads to a transfer of real resources to the international money-issuing country from its trading partner. It induces an expansion of the non-tradable sector in the international money-issuing country, and an expansion the tradable sector in its trading partner. The real impact of a monetary shock is greater under a fixed exchange rate system than under a flexible exchange rate system.

Keywords: demand for money; demand for international currency; monetary policy; exchange rate; non-neutrality of money (search for similar items in EconPapers)
JEL-codes: E41 E52 F11 F31 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2010-05
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
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