Temporary Import Quota and the Current Account

Slobodan Djajic

Working Paper from Economics Department, Queen's University

Abstract: This paper studies the effects of a temporary import quota on the real exchange rate and the current account of a small-open economy populated by utility-maximizing individuals. The optimal current-account response is determined by the interactions between two opposing forces: the intertemporal relative-price effect tends to improve the current account, while the wealth effect contributes to a deterioration. For a sufficiently low degree of intertemporal consumption substitution, the wealth effect is shown to dominate. The current account deteriorates in response to a temporary quota and improves only after the quota is lifted.

Pages: 21 pages
Date: 1985
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:647

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