Tariff and Equilibrium Indeterminacy
We examine the role of tariffs levied on the imported production factor in a one-sector small open economy real business cycle model. We show that under perfect competition and constant returns-to-scale, the model may exhibit local indeterminacy and sunspots as tariff rates are endogenously determined by a balanced-budget rule with a constant level of government expenditures. Conversely, the economy in which the government finances endogenous public spending and transfers with fixed tariff rates is immune to indeterminacy.
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- Zhang, Yan & Chen, Yan, 2008. "Tariff and Equilibrium Indeterminacy--A Note," MPRA Paper 10044, University Library of Munich, Germany. Full references (including those not matched with items on IDEAS)
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