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Stochastic Trade Policy with Asset Markets: The Role of Tariff Structure

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  • Barari, Mahua
  • Lapan, Harvey E.

Abstract

This paper uses a Stockman-Dellas type two-country, two-good, stochastic general equilibrium model to consider the effects of commercial policy when asset markets are complete. We show that: (i) import and export tariffs do not have symmetric effects because interstate relative prices depend on the entire tariff structure; (ii) when commercial policy is random and exogenously determined, the ex post comparison of utility across states depends upon whether import or export tariffs are used; and (iii) when endowments are random, implying the optimal tariff varies across states, the introduction of asset markets may be welfare-reducing when only import tariffs are used.

Suggested Citation

  • Barari, Mahua & Lapan, Harvey E., 1993. "Stochastic Trade Policy with Asset Markets: The Role of Tariff Structure," Staff General Research Papers Archive 10042, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:10042
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    Cited by:

    1. Chen, Sihao & Devereux, Michael B. & Shi, Kang & Xu, Juanyi, 2021. "Exchange rates, local currency pricing and international tax policies," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 460-472.
    2. Mahua Barari, 1997. "Trade policy with asset markets: The role of financial structure for time consistency," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 3(1), pages 18-36, February.
    3. Michael R. Pakko, 1996. "Tariff risk and international borrowing with incomplete asset markets," Working Papers 1996-011, Federal Reserve Bank of St. Louis.
    4. Lindé, Jesper & Pescatori, Andrea, 2019. "The macroeconomic effects of trade tariffs: Revisiting the Lerner symmetry result," Journal of International Money and Finance, Elsevier, vol. 95(C), pages 52-69.
    5. Michael J. Dueker, 1995. "Tariffs and asset market structure: some basic comparative dynamics," Working Papers 1995-009, Federal Reserve Bank of St. Louis.
    6. Francois, Joseph F. & Martin, Will, 2004. "Commercial policy variability, bindings, and market access," European Economic Review, Elsevier, vol. 48(3), pages 665-679, June.

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