Ben Bernanke in Doha: The effect of monetary policy on optimal tariffs

Wolfgang Lechthaler

No 2055, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: Trade liberalization can imply slow and long adjustment processes. Taking account of these adjustment processes can change the evaluation of trade policy, especially when policy makers care more about the next couple of years than the infinite future. In this paper I analyze the setting of tariffs in a two-country model taking account of adjustment processes with special emphasis on the effects of nominal price rigidity and monetary policy. I show that nominal price rigidity induces policy makers with a short planning horizon to set lower tariffs because it enhances the short run boom following a cut in tariffs. Monetary policy that aggressively fights deviations from its inflation target leads to even lower tariffs.

Keywords: tariffs; dynamic trade model; monetary policy (search for similar items in EconPapers)
JEL-codes: E52 F11 F12 F13 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-int, nep-mac and nep-mon
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: Ben Bernanke in Doha: The Effect of Monetary Policy on Optimal Tariffs (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:2055

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