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Steady-State Real Effects Of Inflation In A Heckscher–Ohlin Cash-In-Advance Model

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  • CHUANG, SHI-FENG

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.

Suggested Citation

  • Chuang, Shi-Feng, 2004. "Steady-State Real Effects Of Inflation In A Heckscher–Ohlin Cash-In-Advance Model," Macroeconomic Dynamics, Cambridge University Press, vol. 8(5), pages 633-647, November.
    • Handle: RePEc:cup:macdyn:v:8:y:2004:i:05:p:633-647_04
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