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

Shi-Feng Chuang

Macroeconomic Dynamics, 2004, vol. 8, issue 5, 633-647

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.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:8:y:2004:i:05:p:633-647_04

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