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Deregulation and the Current Account

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  • Philipp Harms

    ()
    (University of Konstanz and Studienzentrum Gerzensee)

Abstract

In this paper we use a dynamic general-equilibrium model to study how removing barriers to competition in the nontraded goods sector affects the current account, the real exchange rate, and the factor prices in a small open economy. We show that the expansion of the nontraded sector that results from a "deregulation shock" is associated with an accumulation of foreign assets unless production of nontraded goods is very capital-intensive. Moreover, while the real exchange rate decreases monotonically towards its new steady state, the real wage may temporarily overshoot its long-run level.

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Bibliographic Info

Paper provided by Swiss National Bank, Study Center Gerzensee in its series Working Papers with number 02.07.

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Length: 24 pages
Date of creation: Dec 2002
Date of revision:
Handle: RePEc:szg:worpap:0207

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  1. Coto-Martinez, Javier & Dixon, Huw, 2003. "Profits, markups and entry: fiscal policy in an open economy," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 27(4), pages 573-597, February.
  2. Lane, Philip R., 1999. "The New Open Economy Macroeconomics: a Survey," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2115, C.E.P.R. Discussion Papers.
  3. Brock, Philip L., 1988. "Investment, the current account, and the relative price of non-traded goods in a small open economy," Journal of International Economics, Elsevier, Elsevier, vol. 24(3-4), pages 235-253, May.
  4. Brock, Philip L & Turnovsky, Stephen J, 1994. "The Dependent-Economy Model with Both Traded and Nontraded Capital Goods," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 2(3), pages 306-25, October.
  5. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262201119, December.
  6. Christian Keuschnigg, 1996. "Overshooting adjustment to tariff liberalization," Open Economies Review, Springer, Springer, vol. 7(3), pages 237-255, July.
  7. Maurice Obstfeld & Kenneth Rogoff, 1994. "Exchange Rate Dynamics Redux," NBER Working Papers 4693, National Bureau of Economic Research, Inc.
  8. Philip L. Brock, 1996. "International Transfers, the Relative Price on Non-Traded Goods, and the Current Account," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 29(1), pages 163-80, February.
  9. Partha Sen & Stephen J. Turnovsky, 1988. "Tariffs, Capital Accumulation, and the Current Account in a Small Open Economy," NBER Working Papers 2781, National Bureau of Economic Research, Inc.
  10. Sebastian Edwards, 1987. "Tariffs, Terms of Trade, and the Real Exchange Rate in an Intertemporal Optimizing Model of the Current Account," NBER Working Papers 2175, National Bureau of Economic Research, Inc.
  11. Gavin, Michael, 1991. "Tariffs and the current account : On the macroeconomics of commercial policy," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 15(1), pages 27-52.
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