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International Monetary Cooperation Under Tariff Threats

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  • Giorgio Basevi
  • Flavio Delbono
  • Vincenzo Denicolo

Abstract

We analyse games between two countries which use the threat of imposing a tariff to induce each other to follow monetary policies equivalent to those that would obtain under a cooperative game. The analysis shows that -- under certain assumptions concerning the shares of tariff revenues, what the countries spend on imports, the punishment structures and the discount factors -- the outcome of the game converges to the equivalent of the cooperative equilibrium, with zero tariffs and optimal monetary policies. It is suggested that the model could be applied to current relations between the US, Germany and Japan.

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Bibliographic Info

Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 40.

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Handle: RePEc:bol:bodewp:40

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Cited by:
  1. Marion Kohler, 1998. "Optimal currency areas and customs unions: are they connected?," Bank of England working papers 89, Bank of England.
  2. Stahl, Dale O. & Turunen-Red, Arja H., 1995. "Tariff games: Cooperation with random variation in political regimes," European Journal of Political Economy, Elsevier, vol. 11(2), pages 215-238, June.
  3. Matteo Cacciatore, 2013. "Trade, Unemployment, and Monetary Policy," 2013 Meeting Papers 724, Society for Economic Dynamics.

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