Rees, Lucy; Tyers, Rod
Because trade liberalisation, taken alone, reduces the home prices of foreign goods, there is a substitution away from home-produced goods and a real depreciation. In fixed exchange rate regimes, this requires a domestic deflation, which can be contractionary in the short run. This paper reviews the short-term effects of trade reform and shows that they are expansionary if the reformed economy enjoys an immediate improvement in allocative efficiency and it attracts a sufficient increase in...[Show more]
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