Tariffs, The Real Exchange Rate and the Terms of Trade: On Two Popular Propositions in International Economics
AbstractIn this paper we investigate the relation between tariff changes, terms of trade changes and the equilibrium real exchange rate. For this purpose we use two models of a small open economy: (1) a three goods version of the Ricardo-Viner model; and (2) a three goods model with full intersectoral factor mobility. We show that, in general, it is not possible to know how the equilibrium real exchange rate will respond to these two disturbances. Moreover, we show that the traditional wisdom that establishes that a tariff hike will always result in a real appreciation, while a terms of trade worsening will generate an equilibrium real depreciation, is incorrect.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Oxford Economic Papers.
Volume (Year): 39 (1987)
Issue (Month): 3 (September)
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Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
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Other versions of this item:
- Sebastian Edwards & Sweder van Wijnbergen, 1989. "Tariffs, the Real Exchange Rate and the Terms of Trade: On Two Popular Propositions in International Economics," NBER Working Papers 2365, National Bureau of Economic Research, Inc.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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