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Working Paper
The Macroeconomic Effects of Trade Policy
We study the short-run macroeconomic effects of trade policies that are equivalent in a friction-less economy, namely a uniform increase in import tariffs and export subsidies (IX), an increase in value-added taxes accompanied by a payroll tax reduction (VP), and a border adjustment of corporate pro.t taxes (BAT). Using a dynamic New Keynesian open-economy framework, we summarize conditions for exact neutrality and equivalence of these policies. Neutrality requires the real exchange rate to appreciate enough to fully offset the effects of the policies on net exports. We argue that a ...
Working Paper
What is Certain about Uncertainty?
Researchers, policymakers, and market participants have become increasingly focused on the effects of uncertainty and risk on financial market and economic outcomes. This paper provides a comprehensive survey of the many existing measures of risk, uncertainty, and volatility. It summarizes what these measures capture, how they are constructed, and their effects, paying particular attention to large uncertainty spikes, such as those appearing concurrently with the outbreak of COVID-19. The measures are divided into three types: (1) news-based, survey- based, and econometric; (2) asset market ...
Working Paper
Investment Responses to Trade Liberalization : Evidence from U.S. Industries and Establishments
This paper examines the effect of a change in U.S. trade policy on the domestic investment of U.S. manufacturers. Using a difference-in-differences identification strategy, we find that industries more exposed to reductions in import tariff uncertainty exhibit relative declines in investment after the change in trade policy. Within industries, we find that this relationship is concentrated among establishments with low initial levels of labor productivity, capital intensity and skill intensity. For plants with high initial levels of skill intensity, we find that increased exposure is ...
Working Paper
Heterogeneous Districts, Interests, and Trade Policy
Congressional districts are political entities with heterogeneous trade policy preferences due to their diverse economic structures. Representation of these interests in Congress is a crucial aspect of trade policymaking that is missing in canonical political economy models of trade. In this paper, we underscore the influence of districts by developing a political economy model of trade with region-specific factors. Using 2002 data from U.S. Congressional Districts, we first characterize the unobserved district-level demand for protection. Extending the model beyond the small country ...
Working Paper
Trade Liberalization and Mortality : Evidence from U.S. Counties
We investigate the impact of a large economic shock on mortality. We find that counties more exposed to a plausibly exogenous trade liberalization exhibit higher rates of suicide and related causes of death, concentrated among whites, especially white males. These trends are consistent with our finding that more-exposed counties experience relative declines in manufacturing employment, a sector in which whites and males are over-represented. We also examine other causes of death that might be related to labor market disruption and find both positive and negative relationships. More-exposed ...
Working Paper
Trade Policy is Real News: Theory and Evidence
We evaluate the aggregate effects of changes in trade barriers when these changes can be implemented slowly over time and trade responds gradually to changes in trade barriers because firm-level trade costs make exporting a dynamic decision. Our model shows how expectations of changes in trade barriers affect the economy. We find that while decreases in trade barriers increase economic activity, expectations of lower future trade barriers temporarily decrease investment, hours worked, and output. Further- more, canceling an expected decline in future trade barriers raises investment and ...
Working Paper
Trade policies and fiscal devaluations
Fiscal devaluations—an increase in import tariffs and export subsidies (IX) or an increase in value-added taxes and payroll subsidies (VP)—have been shown to provide as much stimulus under fixed exchange rates as a currency devaluation. We find that if agents expect policies to be reversed and the tax pass-through is large, VP is contractionary and IX provides a modest boost. In our medium-scale DSGE model, both features are crucial in accounting for Germany’s underperformance in response to VP in 2007. These findings cast doubt on fiscal devaluations as a cyclical stabilization tool ...
Working Paper
Technology, Geography, and Trade over Time: The Dynamic Effects of Changing Trade Policy
I study the dynamic effects of changes in trade policy in a multi-country model with firms that make durable and destination-specific investments in exporting capacity. Using Mexican exporter-level data, I show that incumbent exporters to minor trade partners account for a smaller share of bilateral exports than do incumbent exporters to major trade partners, indicating a systematic difference in the persistence of the export decision across destinations. The model is calibrated to capture the positive relationship between exporting persistence and export volume, and predicts that trade ...
Working Paper
Innovation and Trade Policy in a Globalized World
How do import tariffs and R&D subsidies help domestic firms compete globally? How do these policies affect aggregate growth and economic welfare? To answer these questions, we build a dynamic general equilibrium growth model where firm innovation endogenously determines the dynamics of technology, market leadership, and trade flows, in a world with two large open economies at different stages of development. Firms? R&D decisions are driven by (i) the defensive innovation motive, (ii) the expansionary innovation motive, and (iii) technology spillovers. The theoretical investigation illustrates ...