Abstract
In this paper a general intertemporal model with optimizing consumers and producers is developed to analyze how the imposition of a temporary import tariff affects the path of real exchange rates and the current account. The model is completely real, and considers a small open economy that produces and consumes three goods each period. It is shown that, without imposing rigidities or adjustment costs, interesting paths for the real exchange rate can be generated. In particular equilibrium overshooting can be observed. Precise conditions under which a temporary import tariff will worsen the current account in period 1 are derived. Several ways in which the model can be extended are discussed.
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