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Shock Versus Gradualism in Models of Rational Expectations The Case of Trade Liberalization

This paper provides a new argument for “shock” versus “gradualism” in the implementation of trade policies. In the simple context of a small open economy with rational expectations, we consider the comparative welfare effects of eliminating an import tariff either immediately as an unanticipated sho...

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Bibliographic Details
Main Author: Auernheimer, Leonardo
Other Authors: George, Susan
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1997
Series:IMF Working Papers
Subjects:
Wealth
Investments, Foreign
Tariff
Tariffs
International Trade Organizations
Public Finance & Taxation
Saving
Trade Policy
Trade Liberalization
Long-term Capital Movements
Open Economy Macroeconomics
Exports And Imports
International Economics
Foreign Assets
Investments: Commodities
Commodities
Commercial Policy
Consumption; Economics
Consumption
Macroeconomics
Macroeconomics: Consumption
Investment & Securities
Taxation
Commercial Products
Commodity Markets
International Investment
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:This paper provides a new argument for “shock” versus “gradualism” in the implementation of trade policies. In the simple context of a small open economy with rational expectations, we consider the comparative welfare effects of eliminating an import tariff either immediately as an unanticipated shock, or gradually over a preannounced length of time. The gradualist policy introduces a distortion in consumption-accumulation decisions and generates welfare costs. And if the gradual change is extended over “too long” a period, these costs may exceed the long-run benefits of liberalization
Physical Description:20 pages
ISBN:9781451854459

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