On exchange rates and economic growth

Extending Ireland's (1994) model, this paper analyzes an international econ omy where cash or credit can be used for payment. Foreign trade credit is m ore costly than its domestic analog. A depreciation of the real exchange ra te is associated with an external surplus and a reduced share of imports pu rchased with credit. Economic growth slows when foreign trade credit become s the predominant means of payment for international transactions. A countr y with high inflation exports its Tobin effect and thus temporarily increas es world growth. (C) 1999 Elsevier Science B.V. All rights reserved.