UNCERTAIN DURATION OF REFORM : Dynamic Implications

@inproceedings{Calvo1998UNCERTAINDO,
  title={UNCERTAIN DURATION OF REFORM : Dynamic Implications},
  author={Guillermo Calvo},
  year={1998}
}
We develop a framework to study the effects of policies of uncertain duration on consumption dynamics under both complete and incomplete markets. We focus on the dynamic implications of market incompleteness, specifically on the lack of state-contingent bonds. Two policies are considered: pure output-increasing and tariff-reducing (trade liberalization). With complete markets, the output-increasing policy leads to flat consumption, while with no contingent assets, consumption jumps upward on… CONTINUE READING
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