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Import Tariff and Exchange Rate Transmission in a Small Open Economy

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  • Andrea Pereira Macera
  • Jose Angelo Divino

Abstract

We present a small open economy DSGE model with internal and external sticky prices in an incomplete exchange rate pass-through environment. Import tariff is included as another variable that affects the law of one price. The model is calibrated for the Brazilian economy, and the responses of endogenous variables to shocks in import tariff, aggregate supply, monetary policy, and foreign interest are analyzed. The long-run effect of the first shock is deterioration in the terms of trade because the exchange rate appreciation following this shock offsets the initial effect of the increase in import tariff.

Suggested Citation

  • Andrea Pereira Macera & Jose Angelo Divino, 2015. "Import Tariff and Exchange Rate Transmission in a Small Open Economy," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(S6), pages 61-79, November.
    • Handle: RePEc:mes:emfitr:v:51:y:2015:i:s6:p:s61-s79
    DOI: 10.1080/1540496X.2015.1080556
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    Cited by:

    1. Mehmet Balcilar & David Roubaud & Ojonugwa Usman & Mark E. Wohar, 2021. "Testing the asymmetric effects of exchange rate pass‐through in BRICS countries: Does the state of the economy matter?," The World Economy, Wiley Blackwell, vol. 44(1), pages 188-233, January.
    2. José Pedro Bastos Neves & Willi Semmler, 2022. "Credit, output and financial stress: A non‐linear LVSTAR application to Brazil," Metroeconomica, Wiley Blackwell, vol. 73(3), pages 900-923, July.
    3. Balcilar, Mehmet & Usman, Ojonugwa, 2021. "Exchange rate and oil price pass-through in the BRICS countries: Evidence from the spillover index and rolling-sample analysis," Energy, Elsevier, vol. 229(C).
    4. Zolfaghari, Mehdi, 2023. "How does US tariff policy affect the relationship among crude oil, the US dollar and metal markets?," Resources Policy, Elsevier, vol. 85(PB).
    5. Xingong Ding & Yong-Jae Choi, 2023. "Macroeconomic Effects of Maritime Transport Costs Shocks: Evidence from the South Korean Economy," Mathematics, MDPI, vol. 11(17), pages 1-26, August.
    6. Mehmet Balcilar & David Roubaud & Ojonugwa Usman & Mark E. Wohar, 2019. "Testing the Asymmetric Effects of Exchange Rate and Oil Price Pass-Through in BRICS Countries: Does the state of the economy matter?," Working Papers 15-49, Eastern Mediterranean University, Department of Economics.
    7. Dong, Baomin & Guo, Yibei, 2018. "The impact of the first Sino-Japanese war indemnity: Transfer problem reexamined," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 15-26.

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