Trade Reform, Policy Uncertainty and the Current Account : A Non-Expected Utility Approach
AbstractRapid trade liberalization is often followed by a decline in private savings, although permanent changes in trade policy do not affect intertemporal prices and should thus leave private savings unaffected. But a positive probability of future policy reversal lowers the consumption rate of interest and thus will increase current consumption. Furthermore, to separate the impact of shifts in intertemporal relative prices and of risk aversion, we use the Ordinal Certainty Equivalence approach. We establish that trade policy uncertainty per se will further reduce savings if: (a) there is positive risk aversion; (b) the intertemporal substitution elasticity exceeds one.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 441.
Date of creation: Aug 1990
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Other versions of this item:
- van Wijnbergen, Sweder, 1992. "Trade Reform, Policy Uncertainty, and the Current Account: A Non-Expected-Utility Approach," American Economic Review, American Economic Association, vol. 82(3), pages 626-33, June.
- Wijnbergen, S. van, 1991. "Trade reform, policy uncertainty and the current account: A non-expected utility approach," Discussion Paper 1991-48, Tilburg University, Center for Economic Research.
- Van Wijnbergen, S., 1991. "Trade Reform, Policy Uncertainty and the Current Account : A Non-Expected Utility Approach," Papers 9148, Tilburg - Center for Economic Research.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
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