International Finance Discussion Papers (IFDP)

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September 2019

The Economic Effects of Trade Policy Uncertainty

Dario Caldara, Matteo Iacoviello, Patrick Molligo, Andrea Prestipino, and Andrea Raffo

Abstract:

We study the effects of unexpected changes in trade policy uncertainty (TPU) on the U.S. economy. We construct three measures of TPU based on newspaper coverage, firms' earnings conference calls, and aggregate data on tari rates. We document that increases in TPU reduce investment and activity using both firm-level and aggregate macroeconomic data. We interpret the empirical results through the lens of a two-country general equilibrium model with nominal rigidities and firms' export participation decisions. In the model as in the data, news and increased uncertainty about higher future tariffs reduce investment and activity.

Keywords: Trade Policy Uncertainty; Textual Analysis; Tariffs; Investment; Uncertainty Shocks.

DOI: https://doi.org/10.17016/IFDP.2019.1256

PDF: Full Paper

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Last Update: January 09, 2020