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Thomas L. Hutcheson's avatar

Maybe it is implicitly in there but I do not see the change in the relative prices of

a) non-traded goods to tariffed imports and their competing good,

b) non-tariffed imports and their competing goods to tariffed imports and their competing goods

c) exports and their competing goods to non traded goods.

Likewise, I'm not sure I like the central bank reaction function, alothout it is certainly plausible. I'd want (again, maybe it is there implicitly) the central bank to allow temporary over-target inflation needed to allow those relative prices to adjust given some downwardly sticky absolute prices.

As for the fiscal response, I'd like it to be or able to be made to be similar to private investment, tariff revenues NOT to affect the deficits (netted out against other taxes).

I think being about to talk about these effects enables a more complete policy discussion.

All this doe not mean that this is not a cool model, I just want to supercharge it. :)

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Felipe Camargo's avatar

Hi Thomas, nice to e-meet you.

Thanks for taking interest in my blog enough to comment and share it.

About your model suggestions, I find you may have very good reasons to add more structure to it, however my guiding principle of modelling is to find the simplest setup possible to answer the question at hand. If you feel like some of my assertions are misguided by lacking complexity, I'd certainly invite you to adjust the model appropriately. I believe I have already taught how to adjust these models in previous posts too, so its all within the reader's reach.

That said, I am not entirely convinced the model needs to expand on the trade sector and/or policy reaction functions for much of what I am claiming here. Adjustments can even be made by tweaking few parameters, as in your monetary policy suggestion, for example. But maybe we would benefit from having a clear question first before we touch equations.

I look forward to interacting more with you in the future.

Cheers,

Felipe

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Thomas L. Hutcheson's avatar

Hi, And thank you for the useful reply. Unfortunately my modeling skills such as they were are about 50+ years out of date.

I guess I could go another round trying to persuade YOU to do the adjustment, but, let’s not. You clearly gave my comment some thought and what else should I expect. :)

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