Optimal monetary and tariff policy in open economies

Chan Wang and Heng-Fu Zou ()

No 587, CEMA Working Papers from China Economics and Management Academy, Central University of Finance and Economics

Abstract: This paper investigates the relationship between optimal monetary and tariff policy in open economies. In producer-currency pricing (PCP) case, as in Obstfeld and Rogoff (2002), optimal tariff policy rules are separable from optimal monetary policy rules. Except for PCP case, they are not separable from each other. The increase of tariffs will lead to a more insulated world economy in the sense that both home and foreign pay more attention to their domestic goals respectively. When tariffs are chosen optimally, except for PCP and reference-currency pricing (RCP) cases, optimal monetary policy is inward-looking. We also extend the model to consider gains from cooperation. Except for LCP case, there are gains from cooperation between Home and Foreign monetary policy makers. By comparison, there are gains from cooperation between Home and Foreign tariff policy makers in various cases.

Keywords: Open economies; Tariff policy; Monetary policy; Exchange rate pass-through elasticity; International cooperation (search for similar items in EconPapers)
JEL-codes: E52 F41 F42 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2013-07-28
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cuf:wpaper:587

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