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To What Extent Are Tariffs Offset By Exchange Rates?

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  • Jeanne, Olivier
  • Son, Jeongwon

Abstract

In theory, we should expect tariffs to be partially offset by a currency appreciation in the tariff-imposing country or by a depreciation in the country on which the tariff is imposed. We find, based on a calibrated model, that the tariffs imposed by the US in 2018-19 should not have had a large impact on the dollar but may have significantly depreciated the renminbi. This prediction is consistent with a high-frequency event analysis looking at the impact of tariff-related news on the dollar and the renminbi. We find that tariffs explained at most one fifth of the dollar effective appreciation but around two thirds of the renminbi effective depreciation observed in 2018-19.

Suggested Citation

  • Jeanne, Olivier & Son, Jeongwon, 2020. "To What Extent Are Tariffs Offset By Exchange Rates?," CEPR Discussion Papers 15125, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:15125
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    Cited by:

    1. Jeanne, Olivier & Son, Jeongwon, 2012. "To what extent are tariffs offset by exchange rates?," Economics Working Paper Archive 66656, The Johns Hopkins University,Department of Economics.
    2. Dmitry Matveev & Francisco Ruge-Murcia, 2020. "Tariffs and the Exchange Rate : Evidence from Twitter," Cahiers de recherche 19-2020, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    3. Khalil, Makram & Strobel, Felix, 2021. "US trade policy and the US dollar," Discussion Papers 49/2021, Deutsche Bundesbank.
    4. Shekhar Hari Kumar & Vimal Balasubramaniam & Ila Patnaik & Ajay Shah, 2020. "Who cares about the Renminbi?," 2020 Papers pha1373, Job Market Papers.

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    More about this item

    Keywords

    Dollar; Exchange Rates; Renminbi; tariffs;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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