NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Effects of Inflation on the Pattern of International Trade

Alan C. Stockman

NBER Working Paper No. 713 (Also Reprint No. r0665)
Issued in July 1981
NBER Program(s):   ITI   IFM

This paper examines the relationship between inflation, exchange rates, and the pattern of international trade and payments in a small economy with utility-maximizing agents and a transactions demand for money. Fully anticipated inflation has real effects in the model through its role as a tax on money and thereby on monetary transactions. An increase in the rate of monetary expansion generally reduces the value of domestic output and alters the composition of domestic production. The result is a change in the pattern of international comparative advantage and trade flows. The initial depreciation of the exchange rate following an increase in the rate of monetary expansion is accompanied by a trade surplus and capital outflow, while the subsequent depreciation is accompanied by a trade deficit.

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Document Object Identifier (DOI): 10.3386/w0713

Published: Stockman, Alan C. "Effects of Inflation on the Pattern of International Trade," Canadian Journal of Economics, Vol. XVIII, No. 3, (August 1985), pp. 587-601.

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