Tariffs, the Real Exchange Rate and the Terms of Trade: on Two Popular Propositions in International Economics

15 Pages Posted: 6 Apr 2007

See all articles by Sweder van Wijnbergen

Sweder van Wijnbergen

affiliation not provided to SSRN

Sweder van Wijnbergen

Universiteit van Amsterdam; Tinbergen Institute; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: August 1987

Abstract

In this paper we investigate the relation between tariff changes, terms of trade changes and the equilibrium real exchange rate. For this purpose we use two models of a small open economy: (1) a three goods version of the Ricardo-Viner model; and (2) a three goods model with full intersectoral factor mobility. We show that, in general, it is not possible to know how the equilibrium real exchange rate will respond to these two disturbances. Moreover, we show that the traditional wisdom that establishes that a tariff hike will always result in a real appreciation, while a terms of trade worsening will generate an equilibrium real depreciation, is incorrect.

Suggested Citation

Wijnbergen, Sweder van and van Wijnbergen, Sweder, Tariffs, the Real Exchange Rate and the Terms of Trade: on Two Popular Propositions in International Economics (August 1987). NBER Working Paper No. w2365. Available at SSRN: https://ssrn.com/abstract=977164

Sweder van Wijnbergen

affiliation not provided to SSRN

Sweder Van Wijnbergen

Universiteit van Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4011 / 4203 (Phone)
+31-35-624 91 82 (Fax)

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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