Lee, S.-D.Sampson, J.C.2024-07-182024-07-1820000197-4254https://doi.org/10.1007/BF02298395https://hdl.handle.net/11411/6271The purpose of this paper is to lay simple yet elegant, formal microeconomic foundations for the theory that monetary policy is a principal determinant of international trade imbalance. Foreign exchange is a different form of real liquidity, not a perfect substitute for domestic currency. As a result, foreign money is traded as a commodity in exchange for consumption goods. If the monetary policies of two countries differ, a permanently unbalanced flow of goods may arise. Specifically, this paper argues that a high-inflation regime is likely to induce a perpetual trade deficit. © 2000 International Atlantic Economic Society.eninfo:eu-repo/semantics/closedAccessArticle2-s2.0-5284913784210.1007/BF022983954344Q442728