US trade policy and the US dollar

Makram Khalil and Felix Strobel

Journal of International Economics, 2024, vol. 151, issue C

Abstract: We show that the US dollar response to trade policy uncertainty (TPU) is key to assessing the impact of US trade policy. Employing structural vector autoregressive models, we find that TPU shocks supported a multilateral USD appreciation during the 2018–19 trade tensions between the US and some of its major trading partners. We rationalize this in a two-country New Keynesian model with financial frictions that links the increase in TPU to rising demand for safe USD assets. Our findings suggest that the TPU-induced appreciation of the USD in 2018–19 significantly counteracted US trade policy attempts to raise US competitiveness.

Keywords: Trade policy uncertainty; Safe asset currency; Two-country model with financial frictions (search for similar items in EconPapers)
JEL-codes: E31 F13 F14 F31 F41 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Working Paper: US trade policy and the US dollar (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:151:y:2024:i:c:s0022199624000977

DOI: 10.1016/j.jinteco.2024.103970

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