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Specialization, the Terms of Trade, and the International Transmission of Monetary Policies


  • Kent P. Kimbrough


The Ricardian model with a continuum of goods is extended to a cash-in-advance environment with variable labor supply, which allows domestic monetary policy to influence real activity through an inflation tax channel and to be internationally transmitted to real activity abroad. The continuum-of-goods feature of the model allows for the international transmission of monetary policies to occur at both intensive and extensive margins. At the intensive margin monetary policy is internationally transmitted via its impact on relative employment levels at home and abroad. This in turn alters the terms of trade. thereby affecting the range of commodities in which the home country has a comparative advantage. Monetary policies are thus transmitted at the extensive margin by influencing international patterns of trade and specialization.

Suggested Citation

  • Kent P. Kimbrough, 1992. "Specialization, the Terms of Trade, and the International Transmission of Monetary Policies," Canadian Journal of Economics, Canadian Economics Association, vol. 25(4), pages 884-900, November.
  • Handle: RePEc:cje:issued:v:25:y:1992:i:4:p:884-900

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    References listed on IDEAS

    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Joel Fried, 1980. "The Intergenerational Distribution of the Gains from Technical Change and from International Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 13(1), pages 65-81, February.
    3. Kareken, John & Wallace, Neil, 1977. "Portfolio autarky: A welfare analysis," Journal of International Economics, Elsevier, vol. 7(1), pages 19-43, February.
    4. Starrett, David A, 1972. "On Golden Rules, the "Biological Theory of Interest," and Competitive Inefficiency," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 276-291, March-Apr.
    5. Dornbusch, Rudiger, 1985. "Intergenerational and international trade," Journal of International Economics, Elsevier, vol. 18(1-2), pages 123-139, February.
    6. Krugman, Paul R, 1987. "Is Free Trade Passe?," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 131-144, Fall.
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