Value of WTO Trade Agreements in a New Keynesian Model

Value of WTO Trade Agreements in a New Keynesian Model
Author :
Publisher : International Monetary Fund
Total Pages : 35
Release :
ISBN-10 : 9781498375016
ISBN-13 : 1498375014
Rating : 4/5 (014 Downloads)

Book Synopsis Value of WTO Trade Agreements in a New Keynesian Model by : Mr.Giovanni Ganelli

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.

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