A Paper by Stéphane Auray Presented at NBER Fall Meeting

“Trade Wars, Currency Wars”, a paper written by Stéphane Auray, Professor of Economics at ENSAI and researcher at  CREST, Michael Devereux and Aurélien Eyquem has been presented at the National Bureau of Economic Research’s IFM Fall Meeting on October 30th.

“The National Bureau of Economic Research (NBER) is a private, nonpartisan organization that facilitates cutting-edge investigation and analysis of major economic issues. It disseminates research findings to academics, public and private-sector decision-makers, and the public by posting more than 1,200 working papers and convening more than 120 scholarly conferences, each year”¹.


“For most of the post WWII period, trade protectionism followed a declining trend, contained within international agreements. Even after the 2008-9 Great Recession, most countries forwent the temptation to restrict trade flows, and the key policy conflicts revolved around monetary policy spillovers, or ‘currency wars’. Recently however, there has been a sharp shift towards unilateral, discretionary trade policy focused on short-term macroeconomic objectives, and as a consequence, the phenomenon of ‘trade wars’ has become entangled with ‘currency wars’.

This paper explores the interaction of non-cooperative trade policy and monetary policy within a standard DSGE open economy macroeconomic model.

Auray, Devereux, and Eyquem find that a non-cooperative trade policy can significantly worsen macroeconomic conditions. Moreover, the stance of monetary policy has major implications for the degree of protection in a non-cooperative equilibrium. In particular, cooperative determination of monetary policy (by eliminating ‘currency wars’) may significantly reduce welfare by increasing the size of trade restrictions. By contrast, when the exchange rate is pegged by one country, equilibrium rates of protection are generally lower, but in this case, there are multiple asymmetric equilibria in tariff rates which benefit one country relative to another”.


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Find out more about Stéphane Auray and research at ENSAI

¹ Source: NBER