Tariffs and exchange rate dynamics redux

This paper builds a two-country intertemporal macroeconomic model similar t o one developed recently by Obstfeld and Rogoff. Imperfectly competitive pr oducer/consumers maximize an intertemporal utility function with consumptio n, real money balances and output as arguments. We use the framework to exa mine both the short-run and steady-state effects of the imposition of a tar iff in one of the countries. This results in a fall in the tariff imposer's output in both the steady state and in the short run, A small tariff may m ake a country worse off (contrary to the usual result under perfect competi tion). Spillover effects are also considered. (C) 2000 Elsevier Science Ltd . All rights reserved. JEL classification: F13; F41.