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:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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245 0 0 |a Shock Versus Gradualism in Models of Rational Expectations  |b The Case of Trade Liberalization  |c Leonardo Auernheimer, Susan George 
260 |a Washington, D.C.  |b International Monetary Fund  |c 1997 
300 |a 20 pages 
653 |a Wealth 
653 |a Investments, Foreign 
653 |a Tariff 
653 |a Tariffs 
653 |a International Trade Organizations 
653 |a Public finance & taxation 
653 |a Saving 
653 |a Trade Policy 
653 |a Trade liberalization 
653 |a Long-term Capital Movements 
653 |a Open Economy Macroeconomics 
653 |a Exports and Imports 
653 |a International economics 
653 |a Foreign assets 
653 |a Investments: Commodities 
653 |a Commodities 
653 |a Commercial policy 
653 |a Consumption; Economics 
653 |a Consumption 
653 |a Macroeconomics 
653 |a Macroeconomics: Consumption 
653 |a Investment & securities 
653 |a Taxation 
653 |a Commercial products 
653 |a Commodity Markets 
653 |a International Investment 
700 1 |a George, Susan 
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520 |a 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