IMF Working Paper Series
Выпуск N97/122 за 1997 год
Shock Versus Gradualism in Models of Rational Expectations: The Case of Trade Liberalization [статья]
Опубликовано на портале: 16-12-2003Leonardo Auernheimer, Susan Mary George IMF Working Paper Series. 1997. No. 97/122.
This paper presents another argument in favor of "shock versus gradualism" when implementing trade liberalization policies. In a small open economy in which agents have rational expectations, all policies are credible, and all gains from trade are production gains (an assumption made for simplicity), we show that gradually removing a tariff is in itself distortionary. A temporary, nonzero rate of change in the policy variable the falling tariff rate introduces an intertemporal relative price distortion between consumption and asset accumulation for the duration of the policy. An unanticipated, immediate removal of the tariff is always superior to a gradual removal. If the shock approach of reform is precluded, a gradualist program must be evaluated by comparing the usual permanent gains from free trade with the transitory welfare losses generated from the intertemporal distortion. For certain parameters, if the duration of liberalization is extended over too long a time period, gradualist policies may be worse from a welfare standpoint than not removing the tariff at all. An immediate implication is that a third policy option removing the tariff at once at a future date, without a previous announcement may be better than gradually removing the tariff starting at the present date. Such a policy delays the benefits of the intratemporal production gains but avoids the intertemporal distortion of a gradualist policy. In some cases the gains from avoiding these costs dominate the costs of delay.