This paper explores the relationship between exchange rate adjustment and trade policy in a simple New Keynesian open economy macro model. We show that movement in exchange rates have a direct implication for trade policy when governments choose tariffs endogenously. In particular, we show that...

This paper explores the relationship between exchange rate adjustment and trade policy in a simple New Keynesian open economy macro model. We show that movement in exchange rates have a direct implication for trade policy when governments choose tariffs endogenously. In particular, we show that...

Monetary rules may have a large effect on the outcome of trade wars if central banks target the CPI inflation rate or more generally changes in the relative price of traded goods. We lay out a two-country open-economy model with sticky prices where countries engage in trade wars. In the presence...

We analyze the effects of world wars on the macroeconomic dynamics of the U.S., France, Germany, and the UK, by means of an estimated open-economy model. The model allows wars to affect the economy through capital depreciation, sovereign default, a military draft, household preferences, and...

We develop a two-country model with an explicitly microfounded interbank market and sovereign default risk. Calibrated to the core and the periphery of the Euro Area, the model gives rise to a debt-banks-credit loop that substantially amplifies the effects of financial shocks, especially for the...

We show that welfare can be lower under complete financial markets than under autarky in a monetary union with home bias, sticky prices and asymmetric shocks. Such a monetary union is a second-best environment in which the structure of financial markets affects risk-sharing but also shapes the...

Recent financial crises in Europe as well as the periodic battles in the U.S. over the debt ceiling point to the importance of fiscal discipline among developed countries. This paper develops an open economy model, calibrated to the U.S. and a subset of the EMU, to evaluate the impact of various...