Tariff-tax reform and exchange rate dynamics in a monetary economy

Chi-Chur Chao, Shih Wen Hu, Ching-chong Lai, Meng-Yi Tai and Vey Wang

The North American Journal of Economics and Finance, 2013, vol. 24, issue C, 63-73

Abstract: Using a dynamic monetary model, this paper analyzes the short- and long-run impacts of a tariff-tax reform on the economy, with attention being paid to short-run fluctuations in exchange rates. When a policy reform is announced and if the public believe that it will decrease excess demand, the domestic currency depreciates now to reflect its future depreciation. On the contrary, the domestic currency immediately appreciates if the public believe that it will increase excess demand. However, if there is a relatively small increase in excess demand, the public may mis-react in the exchange rate market by observing currency depreciation first and then appreciation toward the steady-state rate.

Keywords: Tariff-tax reform; Policy announcement; Mis-jump (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:24:y:2013:i:c:p:63-73

DOI: 10.1016/j.najef.2012.07.004

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