Discussion Paper Details

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Title: International Monetary Cooperation under Tariff Threats

Author(s): Giorgio Basevi, Flavio Delbono and Vincenzo DenicolÚ

Publication Date: March 1988

Keyword(s): Monetary Policy, Tariffs and Threat And Punishment Strategies

Programme Area(s): International Macroeconomics and International Trade and Regional Economics

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.

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Bibliographic Reference

Basevi, G, Delbono, F and DenicolÚ, V. 1988. 'International Monetary Cooperation under Tariff Threats'. London, Centre for Economic Policy Research.