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The Demand for Trade Protection over the Business Cycle

Author

Listed:
  • Stéphane AURAY

    (CREST-Ensai and Université du Littoral Côte d'Opale. ENSAI, Campus de Ker-Lann, Rue Blaise Pascal, BP37203, 35172 BRUZ Cedex, France)

  • Michel B. DEVEREUX

    (Vancouver School of Economics, University of British Columbia 6000, Iona Drive, Vancouver B.C. CANADA V6T 1L4, CEPR and NBER)

  • Aurélien EYQUEM

    (Univ Lyon, Université Lumière Lyon 2, GATE L-SE UMR 5824, and Institut Universitaire de France. 93 Chemin des Mouilles, BP167, 69131 Ecully Cedex, France)

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.

Suggested Citation

  • Stéphane AURAY & Michel B. DEVEREUX & Aurélien EYQUEM, 2020. "The Demand for Trade Protection over the Business Cycle," Working Papers 2020-08, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2020-08
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    References listed on IDEAS

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    Cited by:

    1. Masashige Hamano & Francesco Pappadà & Maria Teresa Punzi, 2023. "Optimal Monetary Policy, Tariff Shocks and Exporter Dynamics," Working Papers 2309, Waseda University, Faculty of Political Science and Economics.

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    More about this item

    Keywords

    Protectionism; Tariffs; Business Cycle.;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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