Money, Consumption, and Terms-of-Trade Dynamics: A Note

Chau-nan Chen and Ching-chong Lai

International Economic Review, 1989, vol. 30, issue 4, 1005-09

Abstract: This paper uses an open-economy quantity-theory model to show that a permanent increase in output leads to an increase in money income and international reserves in the long run and a decrease in consumption and overshooting of the terms of trade in the short run, if import demands are relatively elastic. The opposite is true if import demands are relatively inelastic. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1989
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