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G. P. Kouretas - Wages, Flexible Exchange Rates and Commercial Policy

Georgios Kouretas ()

Economia Internazionale / International Economics, 1993, vol. 46, issue 2-3, 225-246

Abstract: The purpose of this paper is to analyze the macroeconomic effects of commercial policy in the form of a general non-retaliatory tariff imposed by a small open economy under flexible exchange rates. The Mundellian analysis which has dominated the discussion in this area has been that a tariff will reduce output and employment. We show that these results are not robust and we derive sufficient conditions in a consistently specified aggregate demand-supply model, under which tariffs may increase output and employment in the long-run. It is further shown that the final outcome depends on the wage-setting regime and on the assumptions we make about the form of the demand for money function.

Date: 1993
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