Trade Policy and Macroeconomic Balance in the World Economy

International Monetary Fund

No 1988/101, IMF Working Papers from International Monetary Fund

Abstract: The paper explores the relationship between trade policy and current accounts. The effect on the current account of a change in protection at home and then abroad is analyzed, assuming that the exchange rate floats. The “savings-and-investment approach” is used. It shows that there is no presumption that protection would reduce a deficit. With a fixed exchange rate, the effect on savings and investment is brought about by the reduction in absorption that is required to maintain internal balance when restrictions are imposed. A current account deficit or real appreciation may generate protectionist pressures stimulated by “conservative resistance.”

Keywords: WP; deficit; protectionism; surplus; dollar; interest rate; current account deficit; import restriction; terms of trade; capital account; current account imbalance; current account improvement; current account surplus; trade policy; Current account; Current account deficits; Import quotas; Current account surpluses; Private savings (search for similar items in EconPapers)
Pages: 22
Date: 1988-01-01
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1988/101

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