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Tariffs, Capital Controls, and Equilibrium Real Exchange Rates

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  • Sebastian Edwards

Abstract

A general equilibrium intertemporal model with optimizing consumers and producers is developed to analyze how the equilibrium real exchange rate reacts to changes in the degree of restrictions to intra- and intertemporal trade. In particular, the effects of changes in the level of import tariffs and of changes in taxes on foreign borrowing on the path of equilibrium real exchange rates are investigated. In the case of import tariffs, both temporary and anticipated changes are considered. It is shown that in this intertemporal framework equilibrium, real exchange rates can exhibit interesting and convoluted behavior. In particular, results that contradict the traditional wisdom can be obtained. A number of extensions are also discussed.

Suggested Citation

  • Sebastian Edwards, 1989. "Tariffs, Capital Controls, and Equilibrium Real Exchange Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 22(1), pages 79-92, February.
  • Handle: RePEc:cje:issued:v:22:y:1989:i:1:p:79-92
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    Cited by:

    1. Frankel, Jeffrey & Saravelos, George, 2012. "Can leading indicators assess country vulnerability? Evidence from the 2008–09 global financial crisis," Journal of International Economics, Elsevier, vol. 87(2), pages 216-231.
    2. Emmanuel Owusu-Sekyere & Reneé van Eyden & Francis M Kemegue, 2014. "Remittances and the Dutch Disease in Sub-Saharan Africa: A Dynamic Panel Approach," Contemporary Economics, University of Finance and Management in Warsaw, vol. 8(3), September.
    3. Gloria Alonso Masmela & Juan Nicólas Hernández & José David Pulido & Martha Lucía Villa, 2008. "Medidas Alternativas De Tasa De Cambio Real Para Colombia," BORRADORES DE ECONOMIA 004679, BANCO DE LA REPÚBLICA.
    4. Kuikeu, Oscar, 2011. "Comment la dernière crise financière a relancé le débat relatif à l'arrimage du fcfa à l'euro
      [How the recent financial crisis have revived the debate on the parity between fcfa and euro]
      ," MPRA Paper 32077, University Library of Munich, Germany.
    5. de Brouwer,Gordon, 1999. "Financial Integration in East Asia," Cambridge Books, Cambridge University Press, number 9780521651486, May.
    6. Ndlela, Thandinkosi, 2011. "Evolution of Zimbabwe’s economic tragedy: a chronological review of macroeconomic policies and transition to the economic crisis," MPRA Paper 32703, University Library of Munich, Germany.
    7. Bouoiyour, jamal & Kuikeu, Oscar, 2007. "Pertinence de la dévaluation du Franc CFA de janvier 1994 : Une évaluation par le taux de change réel d’équilibre. Cas de l’économie camerounaise
      [Relevance of the CFA France devaluation in January
      ," MPRA Paper 31357, University Library of Munich, Germany.
    8. Ndlela, Thandinkosi, 2010. "Implications of real exchange rate misalignment in developing countries: theory, empirical evidence and application to growth performance in Zimbabwe," MPRA Paper 32710, University Library of Munich, Germany.
    9. Megumi Kubota, "undated". "Real Exchange Rate Misalignments: Theoretical Modelling and Empirical Evidence," Discussion Papers 09/24, Department of Economics, University of York.

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