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International Monetary Cooperation under Tariff Threats

Author

Listed:
  • Basevi, Giorgio
  • Delbono, Flavio
  • Denicolò, Vincenzo

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.

Suggested Citation

  • Basevi, Giorgio & Delbono, Flavio & Denicolò, Vincenzo, 1988. "International Monetary Cooperation under Tariff Threats," CEPR Discussion Papers 235, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:235
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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. Dudley Cooke, 2016. "Optimal Monetary Policy with Endogenous Export Participation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 21, pages 72-88, July.
    3. Cacciatore, Matteo & Ghironi, Fabio, 2021. "Trade, unemployment, and monetary policy," Journal of International Economics, Elsevier, vol. 132(C).
    4. 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.

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