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Habits and Durability in Consumption, and the Effects of Tariff Protection

  • Arman Mansoorian

    (York University, Canada)

  • Simon Neaime

    (York University, Canada)

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    Some recent empirical findings are used to motivate employing a model in which consumption exhibits durability, and habits develop over the flow of services provided by them, in order to study the effects of tariff protection on the current account. Durability leads to adjacent substitutability in consumption, while habits are assumed to lead to adjacent complementarity. If durability effects are dominant in the short run, and habit effects in the long run, then tariffs will lead to a current account surplus, which will be followed by a deficit. In the opposite case a deficit will be followed by a surplus.

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    File URL: ftp://dept.econ.yorku.ca/pub/working_papers/96-02.pdf
    File Function: First version, 1996
    Download Restriction: no

    Paper provided by York University, Department of Economics in its series Working Papers with number 1996_02.

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    Length: 19 pages
    Date of creation: Feb 1996
    Date of revision:
    Handle: RePEc:yca:wpaper:1996_02
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    Web page: http://dept.econ.yorku.ca/

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    1. Partha Sen & Stephen J. Turnovsky, 1988. "Tariffs, Capital Accumulation, and the Current Account in a Small Open Economy," NBER Working Papers 2781, National Bureau of Economic Research, Inc.
    2. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    3. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Dynamics of the Trade Balance and the Terms of Trade: The S-Curve," NBER Working Papers 4242, National Bureau of Economic Research, Inc.
    4. Ostry, Jonathan D. & Rose, Andrew K., 1992. "An empirical evaluation of the macroeconomic effects of tarrifs," Journal of International Money and Finance, Elsevier, vol. 11(1), pages 63-79, February.
    5. Heaton, John, 1995. "An Empirical Investigation of Asset Pricing with Temporally Dependent Preference Specifications," Econometrica, Econometric Society, vol. 63(3), pages 681-717, May.
    6. Razin, Assaf & Svensson, Lars E. O., 1983. "Trade taxes and the current account," Economics Letters, Elsevier, vol. 13(1), pages 55-57.
    7. Arman Mansoorian, 1993. "Tariffs, Habit Persistence, and the Current Account," Canadian Journal of Economics, Canadian Economics Association, vol. 26(1), pages 194-207, February.
    8. G. Constantinides, 1990. "Habit formation: a resolution of the equity premium puzzle," Levine's Working Paper Archive 1397, David K. Levine.
    9. Jonathan D. Ostry, 1990. "Tariffs and the Current Account: The Role of Initial Distortions," Canadian Journal of Economics, Canadian Economics Association, vol. 23(2), pages 348-56, May.
    10. Engel, Charles & Kletzer, Kenneth, 1990. "Tariffs and saving in a model with new generations," Journal of International Economics, Elsevier, vol. 28(1-2), pages 71-91, February.
    11. Arman Mansoorian, 1996. "Habits and Durability in Consumption, and the Dynamics of the Current Account," Working Papers 1996_01, York University, Department of Economics.
    12. Ryder, Harl E, Jr & Heal, Geoffrey M, 1973. "Optimum Growth with Intertemporally Dependent Preferences," Review of Economic Studies, Wiley Blackwell, vol. 40(1), pages 1-33, January.
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