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Adjustment Costs and Rational Expectations: An Application to a Tobacco Export Model
Author(s) -
Zanias George P.
Publication year - 1987
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1241302
Subject(s) - economics , competition (biology) , certainty , rational expectations , international economics , international trade , microeconomics , econometrics , ecology , biology , philosophy , epistemology
The effect of adjustment costs on international trade has been captured in an ad hoc fashion in past analysis, whereas a certainty environment is many times assumed. In this article adjustment costs are explicitly considered in the modeling procedure of tobacco exports from Greece, and rational expectations are introduced. The results are consistent with considerable price competition, and a large difference between immediate and long‐run responses, due to adjustment costs, that explain in part the evolution of tobacco exports from Greece and suggest that higher elasticities might be found in international trade if adjustment costs are properly treated.