Metlzer's Paradox and the Optimum Tariff in a Monetary Economy

We augment the standard two country, two commodity an two-factor trade model by allowing for money to exist as an additional asset. We find that it is possible for an increase in the domestic tariff to worsen the terms of trade if the importable sector is severely distorted by the existence of money. Moreover, the Metzler condition is no longer both necessary and sufficient to rule out the Metzler paradox. Finally, we show that the conventional formula for the optimum tariff, derived in barter trade models, has a downward (upward) bias if money is more (less) efficacious in the importable sector