Shock Versus Gradualism in Models of Rational Expectations
AbstractThis 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.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 97/122.
Date of creation: 01 Sep 1997
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- S. Nuri Erbas, 2002. "Primeron Reforms in a Second-Best Ambiguous Environment," IMF Working Papers 02/50, International Monetary Fund.
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