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International Transmission of Monetary Shocks and the Non‐neutrality of International Money

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  • Wenli Cheng
  • Dingsheng Zhang

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 also 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.

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File URL: http://hdl.handle.net/10.1111/j.1467-9396.2011.01013.x
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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 20 (2012)
Issue (Month): 1 (02)
Pages: 134-149

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Handle: RePEc:bla:reviec:v:20:y:2012:i:1:p:134-149

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References

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  1. Dusansky, Richard, 1989. "The Demand for Money and Goods in the Theory of Consumer Choice with Money," American Economic Review, American Economic Association, American Economic Association, vol. 79(4), pages 895-901, September.
  2. Theodore, Palivos & Chong K. Yip, 1996. "The Gains from Trade for a Monetary Economy Once Again," Departmental Working Papers, Chinese University of Hong Kong, Department of Economics _071, Chinese University of Hong Kong, Department of Economics.
  3. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
  4. Kemp, Murray C, 1982. "The Monetary Determinants of Real Trade," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 49(195), pages 261-66, August.
  5. Allan H. Meltzer, 1995. "Monetary, Credit and (Other) Transmission Processes: A Monetarist Perspective," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(4), pages 49-72, Fall.
  6. Anderson, Richard K & Takayama, Akira, 1977. "Devaluation, the Specie Flow Mechanism and the Steady State," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(2), pages 347-61, June.
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Cited by:
  1. Wenli Cheng & Dingsheng Zhang, 2011. "The "Exorbitant Privilege": A Theoretical Exposition," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 435, China Economics and Management Academy, Central University of Finance and Economics.

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