A Dynamic Specific-Factors Model with Money

Jorge E. Roldos

Canadian Journal of Economics, 1992, vol. 25, issue 3, 729-42

Abstract: When the capital stock is endogenously chosen by optimizing households, the predictions of the static specific-factors model are modified. An increase in tariffs unambiguously increases real wages, whereas an expansion of the labor force does not reduce wages. Capital and land are not only factors of production but also assets, and their shares in the household's portfolio are determined by features of the supply side, time preference, and inflation. An increase in inflation reduces the capital stock, but its impact on the price of land is ambiguous because of opposite movements in the inflation tax and in land rents.

Date: 1992
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