Optimal input trade policy under economic uncertainties in a small open economy

Zhongyuan Geng and Xuan Liu

Applied Economics, 2019, vol. 51, issue 20, 2155-2171

Abstract: This article theoretically analyses optimal input trade policy under economic uncertainties in a small open economy. The benchmark model explains both key business cycle moments and asset prices of a representative emerging economy, and the corresponding deterministic version of the model finds no gain by deviating from the free input trade policy. The main findings are as follows: (1) it is optimal for the government to subsidize imported intermediate inputs in the benchmark model and (2) the result is robust to various shocks, various key structural parameters and various preference specifications.

Date: 2019
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DOI: 10.1080/00036846.2018.1540851

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