The Demand for Trade Protection over the Business Cycle

Stéphane Auray, Michel B. Devereux () and Aurélien Eyquem
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Michel B. Devereux: Vancouver School of Economics, University of British Columbia 6000, Iona Drive, Vancouver B.C. CANADA V6T 1L4, CEPR and NBER

No 2020-08, Working Papers from Center for Research in Economics and Statistics

Abstract: We build measures of the demand for trade protection, and relate it to permanent productivity and transitory monetary policy shocks identified from the U.S. monthly and quarterly data. The demand for protection is counter-cyclical conditional on productivity shocks and pro-cyclical conditional on monetary policy shocks. We then layout a two-country dynamic general equilibrium model with trade in intermediate and final goods, sticky prices, incomplete financial markets and endogenous monetary policy rules, and propose a repeated non-cooperative policy game that determines tariffs endogenously. These tradepolicies (i) are consistent with small but positive tariffs, as in the data, and (ii) fit empirical evidence about the cyclical pattern of the demand for trade protection under a wide range of plausible model calibrations. We then use the model to quantify the macroeconomic and welfare effects of a change in tariff setters' preferences that induces tariffs to rise in both countries.

Keywords: Protectionism; Tariffs; Business Cycle. (search for similar items in EconPapers)
JEL-codes: F30 F40 F41 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2020-01-01
New Economics Papers: this item is included in nep-dge, nep-int, nep-mac, nep-opm and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Demand for Trade Protection over the Business Cycle (2024)
Working Paper: The Demand for Trade Protection over the Business Cycle (2023)
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