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Would Protectionism Defuse Global Imbalances and Spur Economic Activity? A Scenario Analysis

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  • Hamid Faruqee
  • Douglas Laxton
  • Dirk Muir
  • Paolo Pesenti

Abstract

In the evolving debate and analysis of global imbalances, a commonly overlooked issue pertains to rising protectionism. This paper attempts to fill that gap, examining the macroeconomic implications of trade policy changes through the lens of a dynamic general equilibrium model of the world economy encompassing four regional blocs. Simulation exercises are carried out to consider the imposition of uniform and discriminatory tariffs on trading partners as well as the case of tariff retaliation. We also discuss a scenario in which a 'globalization backlash' lowers the degree of competition in import-competing sectors, and compare the implications of higher markups in the product and labor markets.

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  • Hamid Faruqee & Douglas Laxton & Dirk Muir & Paolo Pesenti, 2006. "Would Protectionism Defuse Global Imbalances and Spur Economic Activity? A Scenario Analysis," NBER Working Papers 12704, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:12704
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    1. Larch, Mario & Lechthaler, Wolfgang, 2011. "Is there a short-run case for protectionism? Trade policy and the business cycle," Kiel Working Papers 1717, Kiel Institute for the World Economy (IfW Kiel).
    2. Selim Elekdag & René Lalonde & Douglas Laxton & Dirk Muir & Paolo Pesenti, 2008. "Oil Price Movements and the Global Economy: A Model-Based Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 55(2), pages 297-311, June.
    3. Sandra Gomes & Pascal Jacquinot & Matthias Mohr & Massimiliano Pisani, 2013. "Structural Reforms and Macroeconomic Performance in the Euro Area Countries: A Model-Based Assessment," International Finance, Wiley Blackwell, vol. 16(1), pages 23-44, February.
    4. Rob Gregory & Christian Henn & Brad Mcdonald & Mika Saito, 2010. "Trade And The Crisis: Protect Or Recover," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 165-181.
    5. Furlanetto, Francesco, 2011. "Fiscal stimulus and the role of wage rigidity," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 512-527, April.
    6. Francesco FURLANETTO, 2007. "Fiscal Shocks and the Consumption Response when Wages are Sticky," Cahiers de Recherches Economiques du Département d'économie 07.11, Université de Lausanne, Faculté des HEC, Département d’économie.
    7. Massimiliano Pisani & Filippo Vergara Caffarelli, 2018. "What will Brexit mean for the British and euro-area economies? A model-based assessment of trade regimes," Temi di discussione (Economic working papers) 1163, Bank of Italy, Economic Research and International Relations Area.
    8. Jacquinot, Pascal & Lozej, Matija & Pisani, Massimiliano, 2022. "Macroeconomic effects of tariffs shocks: The role of the effective lower bound and the labour market," Journal of International Money and Finance, Elsevier, vol. 120(C).
    9. Daragh Clancy & Donal Smith & Vilém Valenta, 2024. "The Macroeconomic Effects of Global Supply Chain Reorientation," International Journal of Central Banking, International Journal of Central Banking, vol. 20(2), pages 151-191, April.
    10. Gomes, Sandra & Jacquinot, Pascal & Lozej, Matija, 2023. "A single monetary policy for heterogeneous labour markets: the case of the euro area," Research Technical Papers 3/RT/23, Central Bank of Ireland.
    11. Robert R. Hewitt, 2014. "Globalization and Landscape Architecture," SAGE Open, , vol. 4(1), pages 21582440135, February.
    12. René Lalonde & Dirk Muir, 2007. "The Bank of Canada's Version of the Global Economy Model (BoC-GEM)," Technical Reports 98, Bank of Canada.
    13. L´Hotellerie-Fallois, Pilar & Vergara Caffarelli, Filippo & Geeroms, Hans & de Almeida, Ana M. & Bisciari, Patrick & Byrne, Stephen & Campos, Rodolfo & Conefrey, Thomas & Cappariello, Rita & Damjanovi, 2020. "A review of economic analyses on the potential impact of Brexit," Occasional Paper Series 249, European Central Bank.
    14. Hickey, Rónán & Lozej, Matija & Smyth, Diarmaid, 2019. "Government Investment, Its Financing and the Public Capital Stock: A Small Open Economy Perspective," Research Technical Papers 9/RT/19, Central Bank of Ireland.
    15. Philip R. Lane & Gian Maria Milesi-Ferretti, 2007. "Europe and global imbalances [‘New rates for new weights’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 22(51), pages 520-573.
    16. Byrne, Shane & Devine, Kenneth & King, Michael & McCarthy, Yvonne & Palmer, Christopher, 2023. "The Last Mile of Monetary Policy: Inattention, Reminders, and the Refinancing Channel," Research Technical Papers 6/RT/23, Central Bank of Ireland.
    17. Arslan, Yavuz & Kılınç, Mustafa & Turhan, M. İbrahim, 2015. "Global imbalances, current account rebalancing and exchange rate adjustments," Journal of Policy Modeling, Elsevier, vol. 37(2), pages 324-341.
    18. Mr. Dennis P Botman & David Rose & Mr. Douglas Laxton & Mr. Philippe D Karam, 2007. "DSGE Modeling at the Fund: Applications and Further Developments," IMF Working Papers 2007/200, International Monetary Fund.
    19. Tang, Xinmeng & Zhou, Xiaoguang, 2023. "Impact of green finance on renewable energy development: A spatiotemporal consistency perspective," Renewable Energy, Elsevier, vol. 204(C), pages 320-337.
    20. Bartocci, Anna & Pisani, Massimiliano, 2013. "“Green” fuel tax on private transportation services and subsidies to electric energy. A model-based assessment for the main European countries," Energy Economics, Elsevier, vol. 40(S1), pages 32-57.
    21. Pietro Cova & Alessandro Notarpietro & Massimiliano Pisani, 2020. "Protectionism and the effective lower bound in the euro area," Temi di discussione (Economic working papers) 1286, Bank of Italy, Economic Research and International Relations Area.
    22. René Lalonde & Philipp Maier & Dirk Muir, 2009. "Emerging Asia's Impact on Food and Oil Prices: A Model-Based Analysis," Discussion Papers 09-3, Bank of Canada.

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    JEL classification:

    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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