The effects of trade intervention on international price instability
1979
Bale, M.D. | Lutz, E.
Extract: The purpose of this paper is to examine formally the effects of different trade intervention policies on international price instability. Our results show that some trade barriers have no impact on world price instability, while other types of restrictions transfer different degrees of instability from one country to the other. The paper uses a two-country, one-commodity, equilibrium model of trade to show that price instability generated by random supply fluctuations in the importing country can be amplified by various trade restrictions. The analysis is general, so that stochastic disturbances of supply and demand functions in both exporting and importing countries are considered simulataneously in order to demonstrate how and to what extent distortions affect price instability under constant exchange rates. Finally, some concluding comments are offered.
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