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Trade Reform, Policy Uncertainty, and the Current Account: A Non-Expected-Utility Approach

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  • van Wijnbergen, Sweder

Abstract

Rapid 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.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • 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 626-633, June.
  • Handle: RePEc:aea:aecrev:v:82:y:1992:i:3:p:626-33
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    Cited by:

    1. Basu, Parantap & Ghosh, Satyajit & Kallianiotis, Ioannis, 2001. "Interest rate risk, labor supply and unemployment," Economic Modelling, Elsevier, vol. 18(2), pages 223-231, April.
    2. Basu, Parantap & Ghosh, Satyajit, 2001. "Tax rate uncertainty, labor supply and saving in a nonexpected utility maximizing model," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(1), pages 49-68.
    3. Guillermo A. Calvo & Enrique G. Mendoza, 1994. "Trade Reforms of Uncertain Duration and Real Uncertainty: A First Approximation," IMF Staff Papers, Palgrave Macmillan, vol. 41(4), pages 555-586, December.

    More about this item

    JEL classification:

    • 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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