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Asset Markets, Tariffs, and Political Risk

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Alan C. Stockman
Harris Dellas

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Abstract

The paper examines a simple model in which exogenous political risk creates uncertainty about tariffs. The model predicts a relation between consumption and tariffs that differs radically from that implied by models without asset markets or political risk. Given the probability distribution of tariffs, domestic consumption and utility (ex post) are lower in states of the world with a domestic tariff and no foreign tariff than with a foreign tariff and no domestic tariff.This conclusion emerges despite the fact that the opposite would be obtained in the absence of asset markets. So economists should not be surprised if observed relations between consumption and tariffs differ from the predictions of static theory in either time-series or cross-sections.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1413.

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Date of creation: May 1987
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Handle: RePEc:nbr:nberwo:1413

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  1. Grauer, Frederick L. A. & Litzenberger, Robert H. & Stehle, Richard E., 1976. "Sharing rules and equilibrium in an international capital market under uncertainty," Journal of Financial Economics, Elsevier, vol. 3(3), pages 233-256, June. [Downloadable!] (restricted)
  2. Milne, Frank, 1979. "Consumer Preferences, Linear Demand Functions and Aggregation in Competitive Asset Markets," Review of Economic Studies, Blackwell Publishing, vol. 46(3), pages 407-17, July. [Downloadable!] (restricted)
  3. Adler, Michael & Dumas, Bernard, 1983. " International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, American Finance Association, vol. 38(3), pages 925-84, June. [Downloadable!] (restricted)
  4. Pomery, John, 1984. "Uncertainty in trade models," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 9, pages 419-465 Elsevier. [Downloadable!] (restricted)
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(explanations, 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.)

  1. Francois, Joseph & Martin, Will, 2002. "Commercial Policy Variability, Bindings and Market Access," CEPR Discussion Papers 3294, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Michael Dueker, 1995. "Tariffs and asset market structure: some basic comparative dynamics," Working Papers 1995-009, Federal Reserve Bank of St. Louis. [Downloadable!]
  3. Sebastian Edwards & Jonathan D. Ostry, 1991. "Anticipated Protectionist Policies, Real Exchange Rates and the Current Account," NBER Working Papers 2214, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Emily Blanchard, 2006. "Reevaluating the Role of Trade Agreements: Does Investment Globalization Make the WTO Obsolete?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  5. Alan C. Stockman, 1989. "Fiscal Policies and International Financial Markets," NBER Working Papers 1961, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Michael R. Pakko, 1996. "Tariff risk and international borrowing with incomplete asset markets," Working Papers 1996-011, Federal Reserve Bank of St. Louis. [Downloadable!]
  7. Richard A. Jensen & Marie Thursby, 1990. "Tariffs with Private Information and Reputation," NBER Working Papers 2959, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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