the economics of a blend mandate for biofuels a biofuel blend mandate may increase or decrease consumer fuel prices with endogenous oil prices depending on relative supply elasticities biofuel tax credits always reduce fuel prices tax credits result in lower fuel prices than under a mandate for the same level of biofuel production if tax credits are implemented alongside mandates then tax credits subsidize fuel consumption instead of biofuels this contradicts energy policy goals by increasing oil dependency co 2 emissions and traffic congestion while providing little benefit to either corn or ethanol producers these social costs will be substantial with tax credits costing taxpayers 28 7 billion annually by 2022 copyright 2008 oxford university press

alternative transportation fuel standards welfare effects and climate benefits this paper develops an integrated model of the fuel and agricultural sectors to analyze the welfare and greenhouse gas emission ghg effects of the existing renewable fuel standard rfs a low carbon fuel standard lcfs and a carbon price policy the conceptual framework shows that these policies differ in the incentives they create for the consumption and mix of different types of biofuels and in their effects on food and fuel prices and ghg emissions we also simulate the welfare and ghg effects of these three policies which are normalized to achieve the same level of us ghg emissions by promoting greater production of food crop based biofuels the rfs is found to lead to a larger reduction in fossil fuel use but also a larger increase in food prices and a smaller reduction in global ghg emissions compared to the lcfs and carbon tax all three policies increase us social welfare compared to a no biofuel baseline scenario due to improved terms of trade even when environmental benefits are excluded global social welfare increases with a carbon tax but decreases with the rfs and lcfs due to the efficiency costs imposed by these policies even after including the benefits of mitigating ghg emissions

tariffs and employment an intertemporal approach this paper studies the effects of tariffs in a two period two good macroeconomic model the first period is characterized by unemployment and either nominal or real wage rigidities in the second period all prices are flexible and markets clear consumer behavior is based on intertemporal optimization the effects of a temporary and an anticipated tariff on the exchange rate and employment are derived and discussed both fixed and flexible exchange rate regimes are considered some attention is also given to alternative policies as ways of increasing employment copyright 1989 by royal economic society

the sullying effect of recessions previous work has established that recessions involve a cleansing effect so that in downturns only high productivity jobs remain but empirical evidence suggests job quality is procyclical jobs created in recessions are likely to be low paying and temporary this paper modifies previous models by adding on the job search which leads to an additional sullying effect calibration of the model suggests this offsetting sullying effect is likely to be much larger than the cleansing effect and can account for the procyclical match quality we observe in the data

tariff liberalization policy and financial restrictions abstract the purpose of this paper is to assess how restrictions on capital mobility affect adjustment to a tariff liberalization policy this is done by comparing the adjustment process under free and restricted convertibility of foreign assets in a regime where the commercial exchange rate is pegged it is shown that starting from an equilibrium characterized by significant scarcity of foreign assets a policy of simultaneous liberalization of both current and capital account would cause a larger drop in domestic goods prices than would the short run effects of tariff liberalization alone in such an economy the effect of liberalization of capital controls is to generate current account surplus whereas tariff liberalization generates current account deficit

the collapse of purchasing power parities during the 1970 s one of the striking facts concerning the relationship beiveen prices and exchange rates during the 1970 s has been the dismal performance of the predictions of the simple versions of the purchasing power parity doctrine ppp that doctrine in its absolute version states that the equilibrium exchange rate between domestic and foreign currencies equals the ratio of domestic to foreign price levels the relative version of the doctrine relates equilibrium changes in exchange rates to changes in the ratio of domestic to foreign prices during the 1970 s short run changes in exchange rates bore little relationship to short run differentials in national inflation rates and frequently divergences from purchasing power parities have been cumulative this paper reviews and analyzes the empirical record of exchange rates and prices during the 1970 s and the analysis is based on the experience of the dollar pound the dollar frecch franc and the dollar dm exchange rates section 2 presents the evidence on ppp during the 1970 s and contrasts it with the evidence from the 1920 s a period during which the doctrine held up reasonably well this analysis is relevant for assessing whether the flexible exchange rate system was successful in providing national economies with an added degree of insulation from foreign shocks and whether it provided policymakers with an added instrument for the conduct of macroeconomic policy the evidence regarding devia tions from purchasing power parities is also relevant for determining whether there is a case for managed float section 3 attempts to explain what went wrong with

zombie lending and depressed restructuring in japan this paper explores the role that misdirected bank lending played in prolonging the japanese macroeconomic stagnation that began in the early 1990s the investigation focuses on the wide spread practice of japanese banks of continuing to lend to otherwise insolvent firms we docu ment the prevalence of this forbearance lending and show its distorting effects on healthy firms that were competing with the impaired firms the paper by hoshi 2000 was the first to call attention to this phenomenon and its ramifi

lending terms and aggregate productivity abstract several empirical studies suggest that lending terms are eased in expansions and tightened in recessions thereby influencing the mix of financed entrepreneurs we study a model of adverse selection in competitive financial markets and show that lending terms deteriorate with the aggregate state under two general conditions if exogenous increments to entrepreneurs productivity raise returns to investment and or tighten the credit line needed to screen out a given entrepreneur type competition results in contracts with less screening two endogenous effects on productivity emerge production scales grow closer to optimal but lower productivity entrepreneurs enter the mix of producers the positive negative effect dominates at low high aggregate states

riskiness endogenous productivity dispersion and business cycles abstract in the data cross sectional productivity dispersion is countercyclical at both the plant level and the firm level see e g bloom 2009 i incorporate a firm s choice of risk level into a model of firm dynamics with real business cycle features to explain this empirical finding both qualitatively and quantitatively in the model in every period each firm chooses the investment amount and the risk level associated with a production project every period all projects available to each firm have the same expected flow return determined by the aggregate and idiosyncratic shocks to the firm s productivity and differ from one another only in their risk the endogenous option of exiting the market and the limited funding for new investment jointly play an important role in motivating firms risk taking behavior the model predicts that in each period relatively small firms are more likely to take risk and hence exhibit a higher exit rate and that the cross sectional productivity dispersion measured as the standard deviation of the realized individual component of productivity is larger in recessions

tariff behavior in five european countries abstract this paper examines the time series properties of average tariff rates for denmark france sweden switzerland and the united kingdom for all five countries the tariff series contains a unit root however a complete description of the tariff rate series for each country suggests that tariff changes may have quite different effects on macroeconomic variables such as the trade balance in each of the five countries studied

is the sticky price assumption reasonable for exchange rate models abstract the testable implications of sticky price exchange rate models are discussed the empirical examples suggest that the predetermined or sticky price assumption employed in recent asset models of exchange rate determination appears to be appropriate for germany japan the united states and the united kingdom

tariffs quotas and welfare in a monetary economy abstract the effects of tariffs and quotas on welfare in a monetary economy are considered it is shown that while both policies improve the balance of payments they have different lifetime welfare implications even when they are equivalent in the long run the speed of adjustment is shown to be more rapid under a tariff than under a quota therefore adjustment costs associated with changes in money holdings are lower under a tariff while those associated with changes in consumption are higher simulation results are used to examined the implications of various structural parameters for lifetime utility under the two policies

the rise and fall of bioenergy abstract if bioenergy has a less negative impact on the climate than fossil energy it may be optimal to have a significant increase in the use of bioenergy over time due to the difference in the way the climate is affected by the two types of energy the future time path of the use of bioenergy may be non monotonic it may be optimal to first have an increase in its use and later a reduction optimal taxes subsidies are derived both for the first best case and for the case of a constraint on the size of the fossil tax

does britain or the united states have the right gasoline tax this paper develops an analytical framework to assess the second best optimal level of gasoline taxation taking into account unpriced pollution congestion and accident externalities as well as interactions with the broader fiscal system we provide calculations of the optimal taxes for the us and the uk under a variety of parameter scenarios under our central parameter values the second best optimal gasoline tax is 1 01 gal for the us and 1 34 gal for the uk current tax rates are much lower than this in the us and higher in the uk the calculations are moderately sensitive to alternative parameter assumptions the congestion externality is the largest component in both nations revenue raising needs also play a significant role as do accident externalities and local air pollution potential welfare gains from reducing the current uk tax rate are estimated at nearly one fourth the production cost of all gasoline used in the uk even larger gains could be achieved by switching to a tax on vehicle miles with equal revenue yield for the us the welfare gains from optimizing the gasoline tax are smaller but those from switching to an optimal tax on vehicle miles are very large

real disturbances the current account and the exchange rate the case of a tariff abstract this paper examines the effects of an unanticipated tariff on the current account and the exchange rate it is demonstrated that if nontraded goods and importables are substitutes complements in excess demand the imposition of a tariff will may lead to a current account surplus deficit and an appreciation depreciation of the domestic currency the model can be extended to analyze the effects of other real disturbances on the current account and the exchange rate

output effects of a tariff under flexible exchange rates abstract a tariff s impact on output is shown to depend on the asset market structure if foreigners do not hold the domestic asset as is generally assumed in the previous literature the tariff induced current account surplus creates a large enough currency appreciation that demand for domestic output falls when foreigners hold the domestic asset the current account surplus results in an international transfer of assets which allows a smaller currency appreciation the more similar are asset preferences across countries the smaller is the appreciation and therefore the greater is the likelihood that domestic output will increase

tariffs and exchange rate dynamics redux abstract this paper builds a two country intertemporal macroeconomic model similar to one developed recently by obstfeld and rogoff imperfectly competitive producer consumers maximize an intertemporal utility function with consumption real money balances and output as arguments we use the framework to examine both the short run and steady state effects of the imposition of a tariff in one of the countries this results in a fall in the tariff imposer s output in both the steady state and in the short run a small tariff may make a country worse off contrary to the usual result under perfect competition spillover effects are also considered

food and agricultural industries opportunities for improving measurement and reporting we measure one component of off farm food and agricultural industries using establishment level microdata in the federal statistical system we focus on services for crop production and compare measures of firm and employment dynamics in this sector during the 1992 2012 time period with county level publicly available data for the same measures based on differences across data sources we establish new facts regarding the evolution of food and agricultural industries and demonstrate the value of working with confidential microdata in addition to the data and results we present we highlight possibilities for collaboration across universities and federal agencies to improve reporting in other segments of food and agricultural industries

the cost of recessions revisited a reverse liquidationist view the observation that liquidations are concentrated in recessions has long been the subject of controversy one view holds that liquidations are beneficial in that they result in increased restructuring another view holds that this rise in restructuring is costly since liquidations are privately inefficient and essentially wasteful this paper proposes an alternative perspective on the basis of a combination of theory with empirical evidence on gross job flows and on financial and labour market rents we find that cumulatively recessions result in reduced rather than increased restructuring and that this is likely to be socially costly once we consider inefficiencies on both the creation and destruction margins copyright 2005 wiley blackwell

commercial policy and aggregate employment under rational expectations commercial policy is often advocated as a useful tool for combating such macroeconomic ills as unemployment and chronic balance of payments deficits this paper examines the role of expectations in determining the output and employment effects of various commercial policies in a rational expectations framework in which workers have incomplete information it is shown that i the shortrun output and employment effects of commercial policy changes depend crucially on the correlation between real and nominal wages and that ii the use of commercial policy as an instrument of short run stabilization policy cannot be divorced from its long run effects on real wages output and employment i introduction one of the most persistent arguments against free trade is that tariffs import quotas and other protectionist devices are useful tools for combating such macroeconomic ills as unemployment and chronic balance of payments deficits for example it has been and still is argued that by shifting demand from foreign to domestic goods a tariff will increase employment and improve the balance of payments it was this kind of reasoning that led the u s congress to enact the smoot hawley tariffs in 1930 during the early stages of the great depression and that two years later resulted in great britain ending almost a century of free trade by adopting the import duties act in recent years these sentiments have perhaps been part of the intellectual foundation for the new protectionism in light of this it is important to reassess the theoretical basis of these macroeconomic arguments for protection the employment argument for protectionist policies has been discussed by mundell 1961 tower 1973 boyer 1977 chan 1978 eichengreen 1981 and krugman 1982 one common element of all these papers with the exception of eichengreen 1981 and krugman 1982 is that they do not discuss the role if any played by expectations in determining the output and employment effects of commercial policy the importance of expectations for macroeconomic stabilization policy has been the

flexible exchange rates prices and the role of news lessons from the 1970s recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates the 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century since the bretton woods conference into a regime of flexible though managed rates as a consequence of the emergence of the new legal and economic system traders national governments and international organisations were confronted with new economic problems choices and instruments during the 1970s ex change rates fluctuated widely and inflation rates accelerated the international monetary system had to accommodate extraordinarily large oil related shocks which affected trade flows in goods and assets huge oil payments had to be recycled uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier these developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets they were associated with a large slide in the value of the us dollar and resulted in speeding up the creation of new institutions like the european monetary system which provided the formal framework for the management of exchange rates among members

entry and exit of manufacturing plants over the business cycle abstract this paper analyzes the plant level entry and exit over the business cycle we document basic patterns of entry and exit of u s manufacturing plants between 1972 and 1997 we find that the entry rate is more cyclical than the exit rate we also find that the differences in productivity and employment between booms and recessions are particularly larger for entering plants than for exiting plants our new finding suggests that the selection at the entry margin may be more important than the selection at the exit margin in understanding the plant level dynamics over the business cycle

the macroeconomic dynamics of tariffs a symmetric two country analysis this paper examines the macroeconomic dynamics of tariffs the adverse microeconomic effects of tariffs have been exhaustively discussed in the international trade literature however there are still some debate and discussion on the effects of tariffs on the macroeconomy in the mainstream open economy macroeconomics literature it is argued that the impact of imposing a tariff is likely to be contractionary under flexible exchange rates 1 this view however has been challenged first by the cambridge economic policy group cripps and godley 3 and more recently by ford and sen 7 given the fact that commercial policies have recently returned to playing a more central role in policy debates this then leads to a revival of interest in the effects of tariffs on macroeconomic aggregates one important drawback of the analyses in the literature is that they all assume that the domestic economy faces a given world price of imports i e they focus exclusively on small open economies with virtually no attention being devoted to two country models 2 it is surely a question of relevance to examine the cross country impact of protection although considerable effort has been devoted to examine the international transmission of fiscal and monetary policies recently corden and turnovsky 2 svensson and van wijnbergen 13 little has been done on commercial policies in a two country framework 3 it is our intention therefore to relax the small country assumption to study the transmission effect of tariffs in this paper we discuss how likely a tariff will be beggar thy neighbor our main concern is the dynamic effects of a tariff on domestic and foreign aggregates we pay special attention to the distinction between anticipated and unanticipated permanent tariff changes 4 the case of a temporary tariff is also examined the analysis is conducted in a modified two country mun

effective protection and exchange rate determination abstract considerable research interest has entered on the implications for exchange rate determination of fluctuations in intermediate goods prices ang changes in tariff protection this paper draws together the strands of this literature by examining the role of effective protection in exchange rate determination a disaggregated portfolio balance model of the open economy is used to analyze the determination of real and nominal exchange rates in the presence of rational expectations additionally it is used to explore the implications for resource allocation of changes in the effective rate of protection in a country capable of influencing its terms of trade

tariffs and sectoral adjustments in an open economy abstract this paper analyzes the impact of a tariff on sectoral adjustments in an economy which produces two traded consumption goods one of which is exported and one nontraded investment good the importance of sectoral capital intensities is emphasized in particular the qualitative dynamic adjustment depends upon the relative capital intensities of the import competing consumption good sector and the nontraded investment good sector sectoral labor allocation effects are analyzed and the long run effect on aggregate capital accumulation is shown to depend upon the relative capital intensities of the import and export sectors temporary as well as permanent tariffs are discussed

the long run impact of biofuels on food prices more than 40 of us corn is now used to produce biofuels which are used as substitutes for gasoline in transportation biofuels have been blamed universally for past increases in world food prices and many studies have shown that these energy mandates in the us and eu may have a large 30 60 impact on food prices in this paper we use a partial equilibrium framework to show that demand side effects in the form of population growth and income driven preferences for meat and dairy products rather than cereals may play as much of a role in raising food prices as biofuel policy by specifying a ricardian model with differential land quality we find that a significant amount of new land will be converted to farming which is likely to cause a modest increase in food prices however biofuels may increase aggregate world carbon emissions due to leakage from lower oil prices and conversion of pasture and forest land for farming

putty clay technology and stock market volatility abstract firms first order conditions imply that stock returns equal investment returns from the production technology much applied work uses the adjustment cost technology which implies that the realized return is high when the investment capital ratio is high this paper derives for an arbitrary stochastic discount factor the investment return implied by the putty clay technology the combination of capital heterogeneity and irreversibility creates a novel channel for return volatility the investment return is high when the ratio of investment to gross job creation is low empirically the putty clay feature helps account for u s stock market data

causes and consequences of hysteresis aggregate demand productivity and employment in this work we develop an agent based model where hysteresis in major macroeconomic variables e g gross domestic product productivity unemployment emerges out of the decentralized interactions of heterogeneous firms and workers building upon the schumpeter meeting keynes family of models cf in particular dosi et al 2016b 2017c we specify an endogenous process of accumulation of workers skills and a state dependent process of firms entry indeed hysteresis is ubiquitous however this is not due to market imperfections but rather to the very functioning of decentralized economies characterized by coordination externalities and dynamic increasing returns so contrary to the insider outsider hypothesis blanchard and summers 1986 the model does not support the findings that rigid industrial relations may foster hysteretic behavior in aggregate unemployment on the contrary this contribution provides evidence that during severe downturns and thus declining aggregate demand phenomena like decreasing investment and innovation rates skills deterioration and declining entry dynamics are better candidates to explain long run unemployment spells and reduced output growth in that more rigid labor markets may well dampen hysteretic dynamics by sustaining aggregate demand thus making the economy more resilient

the balance of trade and exchange rates theory and contemporary evidence from tourism abstract the purpose of this study is to investigate the effects of exchange rate depreciations and appreciations on the tourism trade balance specifically we employed linear and nonlinear autoregressive distributed lag ardl cointegration techniques to analyze the extent to which currency depreciations and appreciations affect the united states u s bilateral tourism trade with canada mexico and the united kingdom u k the results showed that the depreciation of the u s dollar subsequently improves the u s trade balance with all three trading partners however while the appreciation of the u s dollar deteriorates the u s bilateral tourism trade balance with canada and the u k it does not ultimately affect the u s bilateral tourism trade with mexico in the long term these results provide evidence contradicting the j curve theory supporting the postulations of the ml condition theoretical and policy implications are discussed within the realms of j curve theory marshall lerner ml condition international trade and tourism

self employment over the business cycle in the usa a decomposition entry rates into self employment increase during recessions and decrease during economic upswings i show that this is mostly explained by the higher unemployment rate during a recession together with the fact that at all times unemployed persons have a relatively high propensity to become self employed out of necessity i use econometric decomposition techniques to quantify these effects based on the monthly matched us current population survey before during and after the great recession i also document that the entry rate into self employment with unincorporated businesses strongly increased during the recession but not into self employment with incorporated businesses this highlights the association of unincorporated and incorporated self employment with necessity and opportunity entrepreneurship respectively the results are useful for policymakers and practitioners to understand forecast and act on the different types of self employment that can be expected over the business cycle there are also important implications for theories of the cyclicality of unemployment and entrepreneurship plain english summary self employment will increase during recessions when unemployment is high but it may not boost innovation during recessions increased unemployment underlies the higher entry rate into self employment our evidence is from representative survey data from the usa covering the great recession the upside is that self employment enables workers who lose their jobs to continue to work which can speed up the subsequent economic recovery thus public policy should enable people to start businesses however as during recessions the unemployed mostly start unincorporated businesses one cannot expect them to boost innovation as much as start ups during better economic times these insights also speak to the 2020 recession triggered by covid 19 if unemployment remains high after the relaxation of the lockdowns a rise can be expected especially in non innovative self employment thus the principal policy implication of this study is that policymakers should ensure that their expectations for new businesses started during deep recessions are realistic for the circumstances

temporary import quota and the current account this paper studies the effects of a temporary import quota on the real exchange rate and the current account response is determined by the interaction between two opposing forces the intertemporal relative price effect tends to improve the current account while the wealth 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 in this event the current account deteriorates in response to a temporary quota and improves only after the quota is lifted

on the dynamic non equivalence of tariffs and quotas in the monetary model of the balance of payments comment abstract this comment uses a simple monetary model of the balance of payments to demonstrate that adjustment speed is higher under a tariff than under the quota which is equivalent to it in longrun equilibrium if and only if the tariff is less than the maximum expenditure tariff this result contradicts the conclusion of blejer and hillman that adjustment under the tariff is always faster

impacts of ethanol policy on corn prices a review and meta analysis of recent evidence abstract the literature on the impacts of biofuels on agricultural commodity prices is characterized by contradictory findings we review studies published between 2007 and 2014 that estimate the effects of u s corn ethanol policy on corn prices and find estimates ranging from nil to over 80 such divergent results make it difficult to assess the merits of alternative biofuel policies to bring more clarity to the issue and facilitate comparisons across studies we assemble a database of over 150 medium to long run estimates of the effect of corn ethanol production on corn prices from 29 published studies we first normalize corn price impacts by the change in corn ethanol volume to control for the large differences in ethanol quantities across scenarios we then conduct a meta analysis to identify the factors that drive the remaining variation in corn price impacts across studies in addition to ethanol volumes we find that modeling framework projection year inclusion of ethanol co products and biofuel production from other feedstocks explain much of the differences in price effects the results indicate that a one billion gallon expansion of the us corn ethanol mandate in the year 2015 would lead to a three to four percent increase in corn prices with smaller price changes projected in future years

firm level entry and exit dynamics over the business cycles abstract this paper presents a set of facts on the cyclicality of firm births and deaths in the u s during the period 1979 2013 asymmetry in the cyclicality between firm birth and firm death is observed aggregate firm birth is generally significantly procyclical while the counter cyclicality in firm death is ambiguous and sensitive to the choice of cyclical indicator such a pattern exists within the majority of sectors as well and is mainly driven by small firms young firms are the main contributors to the findings on firm death activity further examination along the time dimension discovers a reason for the contemporaneous cyclicality or lack thereof which can be documented as a new fact firm births positively lead the usual business cycle measures and firm deaths positively lag them moreover cyclicality in business openings and closings differs from establishment level to firm level due to the internal adjustment of continuing firms

the impact of initial financial state on firm duration across entry cohorts recent theories of industry dynamics emphasize the role of financial frictions in determining post entry performance of firms testing these theories has been dicult because of the lack of financial data on the small young and private firms using a unique data set this paper considers the survival of new firm in canadian manufacturing from a financial perspective duration analysis quantifies the eects of firm

information rigidities and asymmetric business cycles abstract we study the link between asymmetries of markups and firm exit rates and asymmetries in information acquisition along the u s business cycle we argue that a model of optimal firm exit under rational inattention produces lagged counter cyclical and positively skewed markups together with counter cyclical exit rates consistent with the empirical evidence our model also predicts counter cyclical information rigidities consistent with survey evidence

the cleansing effect of recessions the authors investigate industry response to cyclical variations in demand production units that embody the newest process and product innovations are continuously being created and outdated units are being destroyed although outdated units are the most likely to turn unprofitable and be scrapped in a recession they can be insulated from the fall in demand by a reduction in creation the structure of adjustment costs plays a determinant role in the responsiveness of those two margins the calibrated model matches the relative volatilities of the observed manufacturing job creation and destruction series and their asymmetries over the cycle copyright 1994 by american economic association

the macroeconomic effects of trade tariffs revisiting the lerner symmetry result abstract we study the robustness of the lerner symmetry result in an open economy new keynesian model with price rigidities while the lerner symmetry result i e the absence of allocative and trade flow effects of an equally sized change in import tariff and export subsidy holds up approximately for a number of alternative assumptions we obtain quantitatively important long term deviations under complete international asset markets direct pass through of tariffs and subsidies to prices and slow exchange rate adjustment can also generate significant short term deviations from lerner deviations from symmetry however do not necessarily imply an impact on global output and are often limited to a redistribution of production and consumption across countries finally we quantify the macroeconomic costs of a trade war and find that they can be substantial with permanently lower income and trade volumes however a fully symmetric retaliation to an unilaterally imposed border adjustment tax can prevent any sizable adverse real or nominal effects

exchange rate pass through and the effects of tariffs on economic performance and welfare abstract we develop a stochastic two country general equilibrium model where prices are determined under conditions of monopolistic competition to examine the macroeconomic and welfare effects of tariffs on the world economy under alternative nominal rigidities producer currency pricing pcp and local currency pricing lcp where the exchange rate pass through is absent we find that the significance of export pricing for the effects of tariffs depends critically upon whether tariffs are anticipated or unanticipated in the former case both pcp and lcp yield the same outcome as do perfectly flexible prices although the mechanism whereby this is achieved is different in the latter case the effects of unanticipated permanent tariffs are highly sensitive to the pricing scheme adopted by exporters leading to a wide range of conflicting outcomes involving tradeoffs among key parameters

a dynamic model of tariffs output and employment under flexible exchange rates abstract a portfolio balance model of the open economy with imperfectly flexible wages and rational expectations is used to analyze the macroeconomic effects of commercial policy previous analyses have led to the counterintuitive and almost inconceivable conclusion that under flexible exchange rates a tariff is contractionary by considering a tariff in a dynamic setting and focusing on the process of adjustment it is shown that there may exist a tradeoff between a tariffs short run and long run effects in certain circumstances a tariff imposed under flexible exchange rates increases output and employment initially while reducing them subsequently