Exchange rates and multicommodity international trade: insights from spatial price equilibrium modeling with policy instruments via variational inequalities.

In this paper, we construct a multicommodity international trade spatial price equilibrium model of special relevance to agriculture in which exchange rates are included along with policy instruments in the form of tariffs, subsidies as well as quotas. The model allows for multiple trade routes between country origin nodes and country destination nodes and these trade routes can include different modes of transportation and transport through distinct countries. We capture the impacts of exchange rates through the definition of effective path costs and identify the governing multicommodity international trade spatial price equilibrium conditions, which are then formulated as a variational inequality problem in product path flows.