Alireza Hassanzadeh Jezdani - Assistant Professor of Economics, Shahid Bahonar University of Kerman

Some countries, particularly developing countries, for reasons such as revenue or protect of domestic industries from foreign competition and also to create a steady demand in the home market for domestic goods imposed high import tariffs.Price system played a crucial role in macroeconomic models. this study looking to derive the Calvo based price setting Phillips curves for import sector, with tariff, in a small open-economy dynamic stochastic general equilibrium model. For this I consider import sector in such a way that consists of monopolistically competitive firms that buy a homogenous good in the world market. the imported product is turned into a differentiated good and then sold to the perfectly competitive aggregation sector which combines the imported varieties. I follow import tax impact through its inclusion in the marginal cost function of importing firms .this study found that a raise of the import tariff determine a Idge betIen the price paid by the importers in the world market and the local currency price applied in the domestic market. This Idge acts as an increase in their real marginal cost and therefore boosts foreign goods inflation. Also in final equation appeared a parameter to responds for price stickiness.

Dynamic Stochastic General Equilibrium, Price Setting, Small Open Economy