Value of WTO Trade Agreements in a New Keynesian Model
Author | : Mr.Giovanni Ganelli |
Publisher | : International Monetary Fund |
Total Pages | : 35 |
Release | : 2015-02-25 |
ISBN-10 | : 9781498375016 |
ISBN-13 | : 1498375014 |
Rating | : 4/5 (014 Downloads) |
Download or read book Value of WTO Trade Agreements in a New Keynesian Model written by Mr.Giovanni Ganelli and published by International Monetary Fund. This book was released on 2015-02-25 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: We revisit the question of the quantitative benefits of WTO trade agreements in a setup that is non-standard from the traditional trade policy point of view. We show that in a New Keynesian model, unilateral trade liberalization reduces welfare due to terms-of-trade deterioration, creating an incentive for a trade agreement. For realistic parameter values, the value of an agreement, which cuts tariffs by one percentage point, is 0.5% to 2% of consumption, much larger than in trade models. The intuition for this result hinges on some New Keynesian features of our framework, such as imperfect competition and endogenous labor supply.