Value of WTO Trade Agreements in a New Keynesian Model
We revisit the question of the quantitative benefits of WTO trade agreements in a setup that is non-standard from the traditional trade policy point of view. We show that in a New Keynesian model, unilateral trade liberalization reduces welfare due to terms-of-trade deterioration, creating an incent...
Main Author: | |
---|---|
Other Authors: | |
Format: | eBook |
Language: | English |
Published: |
Washington, D.C.
International Monetary Fund
2015
|
Series: | IMF Working Papers
|
Subjects: | |
Online Access: | |
Collection: | International Monetary Fund - Collection details see MPG.ReNa |
Summary: | We revisit the question of the quantitative benefits of WTO trade agreements in a setup that is non-standard from the traditional trade policy point of view. We show that in a New Keynesian model, unilateral trade liberalization reduces welfare due to terms-of-trade deterioration, creating an incentive for a trade agreement. For realistic parameter values, the value of an agreement, which cuts tariffs by one percentage point, is 0.5% to 2% of consumption, much larger than in trade models. The intuition for this result hinges on some New Keynesian features of our framework, such as imperfect competition and endogenous labor supply |
---|---|
Physical Description: | 35 pages |
ISBN: | 9781498372671 |