This paper analyses the real and monetary effects of an increase in the price of a traded intermediate input. On the production side, the model differs from other work on the subject in that our economy produces the intermediate input and also traded and non-traded final goods. On the asset side, titles representing ownership of the specific factor which is used in the production of the intermediate input, are explicitly introduced into portfolios. The analysis mainly focuses on the effects of an increase in the price of the intermediate input on the distribution of income, relative prices, production levels, the balance of trade and the level of, as well as the rates of change in, nominal prices and the exchange rate.