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Optimal input trade policy under economic uncertainties in a small open economy

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  • Zhongyuan Geng
  • Xuan Liu

Abstract

This article theoretically analyses optimal input trade policy under economic uncertainties in a small open economy. The benchmark model explains both key business cycle moments and asset prices of a representative emerging economy, and the corresponding deterministic version of the model finds no gain by deviating from the free input trade policy. The main findings are as follows: (1) it is optimal for the government to subsidize imported intermediate inputs in the benchmark model and (2) the result is robust to various shocks, various key structural parameters and various preference specifications.

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  • Zhongyuan Geng & Xuan Liu, 2019. "Optimal input trade policy under economic uncertainties in a small open economy," Applied Economics, Taylor & Francis Journals, vol. 51(20), pages 2155-2171, April.
    • Handle: RePEc:taf:applec:v:51:y:2019:i:20:p:2155-2171
    DOI: 10.1080/00036846.2018.1540851
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