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The Demand for Trade Protection over the Business Cycle

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  • STÉPHANE AURAY
  • MICHAEL B. DEVEREUX
  • AURÉLIEN EYQUEM

Abstract

We build measures of the demand for trade protection, and relate them to permanent productivity and transitory monetary shocks identified from U.S. data. The demand for trade protection is countercyclical conditional on productivity shocks and procyclical conditional on monetary shocks. A two‐country dynamic stochastic general equilibrium (DSGE) model with trade in intermediate and final goods, sticky prices, and incomplete financial markets is proposed, in which tariffs are determined in a repeated noncooperative policy game. The resulting trade policies are consistent with the empirical evidence about the cyclical pattern of trade protection demand.

Suggested Citation

  • Stéphane Auray & Michael B. Devereux & Aurélien Eyquem, 2024. "The Demand for Trade Protection over the Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(4), pages 865-898, June.
    • Handle: RePEc:wly:jmoncb:v:56:y:2024:i:4:p:865-898
    DOI: 10.1111/jmcb.13039
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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

    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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