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The Economic Effects of Trade Policy Uncertainty

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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.

Suggested Citation

  • Dario Caldara & Matteo Iacoviello & Patrick Molligo & Andrea Prestipino & Andrea Raffo, 2019. "The Economic Effects of Trade Policy Uncertainty," International Finance Discussion Papers 1256, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1256
    DOI: 10.17016/IFDP.2019.1256
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    More about this item

    Keywords

    Trade Policy Uncertainty; Textual Analysis; Tariffs; Investment; 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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