Protectionism and the business cycle
By Alessandro Barattieri, M. Cacciatore, Fabio Ghironi. Journal of International Economics, 2021
110 citations recorded by the source corpus.
Abstract We study the macroeconomic effects of protectionism. First, using high-frequency trade policy data, we present fresh evidence on the dynamic effects of temporary trade barriers. Estimates from country-level and panel VARs show that protectionism acts as a supply shock, causing output to fall and inflation to rise in the short run. Moreover, protectionism has at best a small positive effect on the trade balance. Second, we build a small open economy model with firm heterogeneity, endogenous selection into trade, and nominal rigidity that successfully reproduces the VAR evidence. The model highlights the importance of aggregate investment dynamics and micro-level reallocations for the contractionary effects of tariffs. We then use the model to study scenarios where temporary trade barriers have been advocated as potentially beneficial, including recessions with binding constraints on monetary policy easing or in the presence of a fixed exchange rate. In all the scenarios we consider, protectionism is not an effective tool for macroeconomic stimulus.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/5479cf7c51c5ae4c43468e686878b7df71a2fb5f
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Citations in the corpus
- Brexit and the macroeconomic impact of trade policy uncertainty (2019, background): “Ruhl (2014) and Barattieri et al. (2018), for example, analyze the aggregate impact of antidumping investigations and other forms of temporary trade barriers, and Steinberg (2018b) stud- 2 ies how terminating NAFTA would affect the U.S., Canadian, and Mexican economies.”