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Tariff-tax reform and exchange rate dynamics in a monetary economy

Author

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  • Chao, Chi-Chur
  • Hu, Shih-Wen
  • Lai, Ching-Chong
  • Tai, Meng-Yi
  • Wang, Vey
Abstract
Using a dynamic monetary model, this paper analyzes the short- and long-run impacts of a tariff-tax reform on the economy, with attention being paid to short-run fluctuations in exchange rates. When a policy reform is announced and if the public believe that it will decrease excess demand, the domestic currency depreciates now to reflect its future depreciation. On the contrary, the domestic currency immediately appreciates if the public believe that it will increase excess demand. However, if there is a relatively small increase in excess demand, the public may mis-react in the exchange rate market by observing currency depreciation first and then appreciation toward the steady-state rate.

Suggested Citation

  • Chao, Chi-Chur & Hu, Shih-Wen & Lai, Ching-Chong & Tai, Meng-Yi & Wang, Vey, 2013. "Tariff-tax reform and exchange rate dynamics in a monetary economy," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 63-73.
    • Handle: RePEc:eee:ecofin:v:24:y:2013:i:c:p:63-73
    DOI: 10.1016/j.najef.2012.07.004
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    References listed on IDEAS

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    3. Hamid Beladi & Avik Chakrabarti & Sugata Marjit, 2016. "Competitive General Equilibrium with Finite Change and Theory of Policy Making," Economics and Politics, Wiley Blackwell, vol. 28(1), pages 1-7, March.

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    More about this item

    Keywords

    Tariff-tax reform; Policy announcement; Mis-jump;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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