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

Author

Listed:
  • Ken-ichi Hashimoto
  • Kaz Miyagiwa
  • Yoshiyasu Ono
  • Matthias Schlegl
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 finding is that the tariff only worsens the economy when it is already stagnant.

Suggested Citation

  • Ken-ichi Hashimoto & Kaz Miyagiwa & Yoshiyasu Ono & Matthias Schlegl, 2024. "Was Keynes right? A reconsideration of the effect of a protective tariff under stagnation," ISER Discussion Paper 1245, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:1245
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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