NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Stéphane Auray

CREST (UMR9194) - Ensai and
Université du Littoral Côte d'Opale
ENSAI
Campus de Ker-Lann
Rue Blaise Pascal
BP 37203, 35172 BRUZ Cedex,
France

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: ULCO - CNRS MESHS

NBER Working Papers and Publications

January 2019Endogenous Trade Protection and Exchange Rate Adjustment
with Michael B. Devereux, Aurélien Eyquem: w25517
This paper explores the relationship between exchange rate adjustment and trade policy in a simple New Keynesian open economy macro model. We show that movement in exchange rates have a direct implication for trade policy when governments choose tariffs endogenously. In particular, we show that the strategic incentive to impose trade restrictions is greater under flexible exchange rates than when exchange rates are fixed. This surprising result goes counter to conventional wisdom, which suggests that pressures to impose trade restrictions are greater when countries resist adjustments in exchange rates. But in fact, we show that the empirical evidence supports the model predictions. The paper goes on to characterize the path of equilibrium sustainable tariffs in the presence of sticky price...
 
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