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Deregulation and the Current Account


  • Philipp Harms

    () (University of Konstanz and Studienzentrum Gerzensee)


In this paper we use a dynamic general-equilibrium model to study how removing barriers to competition in the nontraded goods sector affects the current account, the real exchange rate, and the factor prices in a small open economy. We show that the expansion of the nontraded sector that results from a "deregulation shock" is associated with an accumulation of foreign assets unless production of nontraded goods is very capital-intensive. Moreover, while the real exchange rate decreases monotonically towards its new steady state, the real wage may temporarily overshoot its long-run level.

Suggested Citation

  • Philipp Harms, 2002. "Deregulation and the Current Account," Working Papers 02.07, Swiss National Bank, Study Center Gerzensee.
  • Handle: RePEc:szg:worpap:0207

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    References listed on IDEAS

    1. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201119, January.
    2. Philip L. Brock, 1996. "International Transfers, the Relative Price on Non-Traded Goods, and the Current Account," Canadian Journal of Economics, Canadian Economics Association, vol. 29(1), pages 163-180, February.
    3. Brock, Philip L & Turnovsky, Stephen J, 1994. "The Dependent-Economy Model with Both Traded and Nontraded Capital Goods," Review of International Economics, Wiley Blackwell, vol. 2(3), pages 306-325, October.
    4. Sebastian Edwards, 1987. "Tariffs, Terms of Trade, and the Real Exchange Rate in an Intertemporal Optimizing Model of the Current Account," NBER Working Papers 2175, National Bureau of Economic Research, Inc.
    5. Lane, Philip R., 2001. "The new open economy macroeconomics: a survey," Journal of International Economics, Elsevier, vol. 54(2), pages 235-266, August.
    6. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-660, June.
    7. Coto-Martinez, Javier & Dixon, Huw, 2003. "Profits, markups and entry: fiscal policy in an open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 27(4), pages 573-597, February.
    8. Sen, Partha & Turnovsky, Stephen J, 1989. "Tariffs, Capital Accumulation, and the Current Account in a Small Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 811-831, November.
    9. Christian Keuschnigg, 1996. "Overshooting adjustment to tariff liberalization," Open Economies Review, Springer, vol. 7(3), pages 237-255, July.
    10. Brock, Philip L., 1988. "Investment, the current account, and the relative price of non-traded goods in a small open economy," Journal of International Economics, Elsevier, vol. 24(3-4), pages 235-253, May.
    11. Gavin, Michael, 1991. "Tariffs and the current account : On the macroeconomics of commercial policy," Journal of Economic Dynamics and Control, Elsevier, vol. 15(1), pages 27-52.
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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