A Model of the Euro Area, China and the United States: Trade Links and Trade Wars

Volha Audzei, Jan Brůha

In this paper we develop a dynamic stochastic general equilibrium model featuring the euro area, the United States and China, with an exogenous rest of the world. The countries in the model are linked through trade and international bond purchases. Having estimated the model, we study several scenarios of trade wars between the countries. Our findings suggest that no country benefits from imposing tariffs in the long run. The degree to which a particular country is hurt depends on the strength of its import and export links.

JEL codes: C11, E37, F13, F41

Keywords: Bayesian estimation, China, multi-country DSGE, trade wars

Issued: December 2020

Download: CNB WP No. 6/2020 (pdf, 1.1 MB)