A Multi-country Monetary Economic Growth Model with International Trade and National Monetary Policies

This paper proposes a multi-country monetary growth model with capital accumulation. The real aspects of the model are based on the neo-classical growth theory. Money is introduced via the cash-in-advance (CIA) approach. We show that the dynamics of the J-country world economy can be described by 2J-dimensional differential equations. We also simulate equilibrium and motion of the global economy with three countries and Cobb-Douglas production functions. We demonstrate effects of changes in technology and inflation policy. For instance, our simulation demonstrates that as the developed economy improves its technology, its total output, product per worker and wage are increased over time; the corresponding variables of the other two economies are reduced. We also try to provide some possible implications of our model for the recent economic crisis.