Trade Reforms of Uncertain Duration and Real Uncertainty: A First Approximation

April 1, 1994

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Guillermo Calvo, and Enrique G. Mendoza Trade Reforms of Uncertain Duration and Real Uncertainty: A First Approximation, (USA: International Monetary Fund, 1994) accessed October 3, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines trade reforms of uncertain duration undertaken in economies subject to real foreign and domestic shocks. These reforms induce consumption and import booms regardless of whether they succeed or fail and of the degree of intertemporal elasticity of substitution. If tariff revenue is rebated, a recession follows the boom, but without rebates a boom or a recession may follow depending on the outcome of the reform. Consumption fluctuations reflect imperfect credibility and real shocks, and the credibility component depends on the mean and risk of real asset returns. Thus, observed booms are a noisy signal of imperfect credibility. Quantitatively, lack of credibility produces sizable consumption cycles, but generally smaller than those induced by real disturbances.

Subject: Business cycles, Consumption, Economic growth, International trade, National accounts, Tariffs, Taxes, Terms of trade, Trade liberalization

Keywords: Business cycle, Business cycles, Consumption, Consumption boom, Consumption growth, Free trade, Productivity shock, Saving rate, Savings plan, Tariff rebate, Tariff-rebates economy, Tariffs, Terms of trade, Terms of trade improvement, Terms-of-trade shock, Trade liberalization, Trade reform, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1994/045
Stock No:

WPIEA0451994
ISBN:

9781451974270
ISSN:

1018-5941

Notes

Also published in Staff Papers, Vol. 41, No. 4, December 1994.

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