The Economic Effects Of Trade Policy Uncertainty

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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.

Code and Data

The code and data used in this paper are available at https://www.matteoiacoviello.com/tpu.htm

Citation

Caldara, D., Iacoviello, M., Molligo, P., Prestipino, A., & Raffo, A. (2020). “The Economic Effects of Trade Policy Uncertainty.” Journal of Monetary Economics, 109, 38-59.

@article{caldara2020economic,
  title={The economic effects of trade policy uncertainty},
  author={Caldara, Dario and Iacoviello, Matteo and Molligo, Patrick and Prestipino, Andrea and Raffo, Andrea},
  journal={Journal of Monetary Economics},
  volume={109},
  pages={38--59},
  year={2020},
  publisher={Elsevier}
}