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Was Keynes right? A reconsideration of the effect of a protective tariff under stagnation

Author

Listed:
  • Ken-ichi Hashimoto

    (Graduate School of Economics, Kobe University)

  • Kaz Miyagiwa

    (Department of Economics, Florida International University)

  • Yoshiyasu Ono

    (Institute of Social and Economic Research, Osaka University
    Osaka University of Economics)

  • Matthias Schlegl

    (Department of Economics, Sophia University, Tokyo, Japan)

Abstract

This paper first presents a dynamic model that features both real and monetary aspects of international trade and is capable of dealing with both full employment and secular unemployment. The model is then utilized to examine the effect of a tariff on the terms of trade, the trade pattern, real consumption and employment of labor. It is shown that with full employment in both countries, a tariff by the home country improves its terms of trade and increases its national welfare at the expense of the foreign country. These results however are reversed in the presence of unemployment in both countries. We also examine the asymmetric cases and calibrate our model to evaluate numerically the effect of large tariff changes. The main ï¬ nding is that the tariff only worsens the economy when it is already stagnant.

Suggested Citation

  • Ken-ichi Hashimoto & Kaz Miyagiwa & Yoshiyasu Ono & Matthias Schlegl, 2024. "Was Keynes right? A reconsideration of the effect of a protective tariff under stagnation," Working Papers 2409, Florida International University, Department of Economics.
    • Handle: RePEc:fiu:wpaper:2409
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    demand shortage; unemployment; tariffs; secular stagnation;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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