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The Macroeconomy After Tariffs

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  • Furceri,Davide
  • Hannan,Swarnali A.
  • Ostry,Jonathan D.
  • ROSE,ANDREW K.

Abstract

What does the macroeconomy look like in the aftermath of tariff changes This paper estimatesimpulse response functions from local projections using a panel of annual data that spans 151 countries over1963–2014. Tariff increases are associated with persistent, economically and statistically significant, declines indomestic output and productivity, as well as higher unemployment and inequality, real exchange rate appreciationand insignificant changes to the trade balance. Output and productivity impacts are magnified when tariffs rise duringexpansions and when they are imposed by more advanced or smaller (as opposed to developing or larger) economies;effects are asymmetric, being larger when tariffs go up than when they fall. While firmly establishing causality is always a challenge, the results are robust to a large numberof perturbations to the baseline methodology, and hold using both macroeconomic and industry-level data.

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  • Furceri,Davide & Hannan,Swarnali A. & Ostry,Jonathan D. & ROSE,ANDREW K., 2021. "The Macroeconomy After Tariffs," Policy Research Working Paper Series 9854, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9854
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    1. Jeanne, Olivier & Son, Jeongwon, 2024. "To what extent are tariffs offset by exchange rates?," Journal of International Money and Finance, Elsevier, vol. 142(C).

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    Keywords

    International Trade and Trade Rules; Macroeconomic Management; Employment and Unemployment; Inflation; Trade Policy;
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