Monetary Expansion,International Trade and Capital Accumulation*

This paper considers the long-run domestic and foreign effects of a domestic monetary expansion in a two-country model in which the processes of capital accumulation at home and abroad interact with each other via international trade. We investigate the global stability conditions and their relationship with the comparative dynamic effects of a monetary expansion in the model. In particular, we show that under plausible global stability conditions the early analytical results obtained by Roberts (1978) and Shieh (1984) may be reversed in the two-country model.