Short and long run macroeconomic effects of trade policy in the presence of debt servicing

Research output: Working paperAcademic

Abstract

The purpose of this paper is to analyze the macroeconomic effects of trade policy, when the instrument is a voluntary export restraint (VER), on both the home (imposing) country and the foreign (targeted) country. The innovation in the paper is the analysis of trade policy when debt servicing is present in the current account of the balance of payments. This captures the contemporary experience of deficit nations like the USA vis-à-vis surplus countries like China. Trade policy (VER) in the short-run affects the current account and exchange rate, leading to the accumulation of debt stocks, which have to be repaid in the long-run in the form of debt servicing flows. This leads to a major difference between the short and long-run effects of trade policy in the form of VERs, which can be expansionary and contractionary respectively for the trade policy initiating nation.
Original languageEnglish
Place of PublicationThe Hague
PublisherInternational Institute of Social Studies (ISS)
Number of pages15
Publication statusPublished - Mar 2010

Publication series

SeriesISS working papers. General series
Volume499

Bibliographical note

ISSN: 0921-0210
http://hdl.handle.net/1765/19428

Series

  • ISS Working Paper-General Series

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