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The economic effects of trade policy uncertainty

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

Abstract

This paper studies the effects of unexpected changes in trade policy uncertainty (TPU) on the U.S. economy. Three measures of TPU are constructed using newspaper coverage, firms’ earnings calls, and tariff rates. Firm-level and aggregate macroeconomic data reveal that increases in TPU reduce business investment. The empirical results are interpreted through the lens of a two-country general equilibrium model with nominal rigidities and firms’ export participation decisions. News and increased uncertainty about higher future tariffs reduce investment and activity.

Suggested Citation

  • Caldara, Dario & Iacoviello, Matteo & Molligo, Patrick & Prestipino, Andrea & Raffo, Andrea, 2020. "The economic effects of trade policy uncertainty," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 38-59.
  • Handle: RePEc:eee:moneco:v:109:y:2020:i:c:p:38-59
    DOI: 10.1016/j.jmoneco.2019.11.002
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    More about this item

    Keywords

    Trade policy uncertainty; Textual analysis; Tariffs; Investment; News shocks; Uncertainty shocks;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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