Shadow prices and trade restrictions in a monetary economy

Using a cash-in-advance (CIA) framework, this paper examines the shadow pri ce of foreign exchange under three types of trade restrictions. The CIA con straint creates a consumption distortion that alters the recipient's welfar e. If the effective cash requirement for a unit of the exportable becomes s maller (larger), foreign transfer improves (reduces) welfare and hence the shadow price is greater (less) than unity. Both cases of untied and tied fo reign transfer are examined.