Resource title

Trade retaliation in a monetary-trade model

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Resource description

We explore how outcomes of trade policy retaliation (Nash tariff games) are affected when trade simultaneously takes places geographically across countries and through time via financial intermediation. In such models deficits and surpluses in goods trade are endogenously determined, and retaliatory trade policy towards goods can affect these and monetary trade models show different retaliatory trade outcomes from conventional goods only models. We use a general equilibrium goods trade model which also captures trade through time in the form of inside money as used in macro literature on one good overlapping generations models. In this model the deficit or surplus of any country in goods trade is endogenous determined. Optimal trade policy differs from that in a conventional goods only trade model in that countries which run trade deficits in goods will have more strategic power through tariff policy (and surplus countries less) than in models with balanced trade. We calibrate such a model to China's trade with the rest of the world and explore two country tariff games using 2005 data. Results show the significant impacts on Nash outcomes of endogenizing the Chinese trade surplus in the model in this way.

Resource author

John Whalley, Jun Yu, Shunming Zhang

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/26571

Resource license

Adapt according to the presented license agreement and reference the original author.