Was Keynes right? A reconsideration of the effect of a protective tariff under stagnation

Ken-ichi Hashimoto, Kaz Miyagiwa (), Yoshiyasu Ono and Matthias Schlegl ()
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Kaz Miyagiwa: Department of Economics, Florida International University
Matthias Schlegl: Department of Economics, Sophia University, Tokyo, Japan

No 2409, Working Papers from Florida International University, Department of Economics

Abstract: This paper first presents a dynamic model that features both real and monetary aspects of international trade and is capable of dealing with both full employment and secular unemployment. The model is then utilized to examine the effect of a tariff on the terms of trade, the trade pattern, real consumption and employment of labor. It is shown that with full employment in both countries, a tariff by the home country improves its terms of trade and increases its national welfare at the expense of the foreign country. These results however are reversed in the presence of unemployment in both countries. We also examine the asymmetric cases and calibrate our model to evaluate numerically the effect of large tariff changes. The main ï¬ nding is that the tariff only worsens the economy when it is already stagnant.

Keywords: demand shortage; unemployment; tariffs; secular stagnation (search for similar items in EconPapers)
JEL-codes: E24 E31 F13 F41 J20 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2024-06
New Economics Papers: this item is included in nep-int, nep-lma and nep-opm
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Working Paper: Was Keynes right? A reconsideration of the effect of a protective tariff under stagnation (2024)
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