Non-traded goods and optimal trade policy in a cash-in-advance economy

摘要: This paper develops a standard trade model of small open monetary economy with two traded and one non-traded goods. Money is introduced through generalized cash-in-advance constraint where the share goods purchases that must be made using cash, varies across sectors. We find free may harmful so alternative policy instruments considered to improve welfare. In addition, we study compare optimal tariff formula consumption tax structure. presence distortion good, not Pareto dominate although latter bears an additional production burden. corroborates theory second best.