Trade and currency weapons

The debate on trade and currency wars has reemerged since the Global Financial Crisis. We study two forms of noncooperative policies within a single framework. First, we compare elasticity flows to import tariffs real exchange rate, based product-level data for 110 countries over 1989–2013 period. find that 1% depreciation importer's reduces imports by around 0.5% in current dollar, whereas an increase 1 percentage point 1.4%. Hence, instruments are not equivalent. Second, build stylized short-term macroeconomic model where government aims at internal external balance. that, this setting, monetary policy is more stabilizing economy than policy. One implication normal times, country will likely react “aggression” through easing rather tariff increase. However, both (imperfect) substitutes short term, when only one them available.