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Trade Policy and Macroeconomic Balance in the World Economy

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  • 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.”

Suggested Citation

  • International Monetary Fund, 1988. "Trade Policy and Macroeconomic Balance in the World Economy," IMF Working Papers 1988/101, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1988/101
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=28219
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    Cited by:

    1. Jonathan D. Ostry & Carmen M. Reinhart, 1992. "Private Saving and Terms of Trade Shocks: Evidence from Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 495-517, September.

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