Abstract
This paper examines the macroeconomic effects of tariffs in a two-country monetary optimizing model. With universal real wage rigidity, a tariff is likely to be more contractionary, (i) the larger the proportion of the labor force employed in the exportable sector, (ii) the smaller the share of expenditure on the exportable, and (iii) the lower (higher) the employment elasticity in the importable (exportable) industry. Under complete specialization in production, a tariff is contractionary domestically and beggar-thy-neighbor internationally, independent of the foreign wage behavior. [F13]
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