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North-South Trade and the Non-Neutrality of International Money

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  • Wenli Cheng
  • Dingsheng Zhang

Abstract

This paper develops a Ricardian model with money to study North-South trade that is mediated by the currency of the North. The model shows that an increase in the supply of Northern money results in inflation being “exported†to the South. The increase in the supply of Northern money also has real effects: (1) it transfers real resources from the South to the North, lowers the wage rate in the South relative to that in the North, and worsens the terms of trade for the South; and (2) it leads to structural changes in both economies by encouraging the expansion of the tradable sector in the South and the expansion of the non-tradable sector in the North.

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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2010/1810northchengzhang.pdf
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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 18-10.

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Length: 10 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:mos:moswps:2010-18

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Related research

Keywords: North-South trade; demand for money; demand for foreign exchange; monetary policy; money non-neutrality;

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