Modeling Trade Tensions: Different Mechanisms in General Equilibrium

Benjamin Hunt, Susanna Mursula, Rafael Portillo and Marika Santoro

No 2020/279, IMF Working Papers from International Monetary Fund

Abstract: In this paper, we investigate the mechanisms through which import tariffs impact the macroeconomy in two large scale workhorse models used for quantitative policy analysis: a computational general equilibrium (CGE) model (Purdue University GTAP model) and a multi-country dynamic stochastic general equilibrium (DSGE) model (IMF GIMF model). The quantitative effects of an increase in tariffs reflect different mechanisms at work. Like other models in the trade literature, in GTAP higher tariffs generate a loss in terms of output arising from an inefficient reallocation of resources between sectors. In GIMF instead, as in other DSGE models, tariffs act as a disincentive to factor utilization. We show that the two models/channels can be broadly interpreted as capturing the impact of tariffs on different components of a country’s aggregate production function: aggregate productivity (GTAP) and factor supply/utilization (GIMF). We discuss ways to combine the estimates from these two models to provide a more complete assessment of the macro effects of tariffs.

Keywords: Trade policy; trade elasticity; Nominal and real rigidities; general equilibrium (search for similar items in EconPapers)
Pages: 42
Date: 2020-12-11
New Economics Papers: this item is included in nep-cmp, nep-dge and nep-int
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Citations: View citations in EconPapers (1)

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