The Multifaceted Impact of US Trade Policy on Financial Markets

Lukas Boer, Lukas Menkhoff and Malte Rieth (mrieth@diw.de)

No 1956, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We study the multifaceted effects and persistence of trade policy shocks on financial markets in a structural vector autoregression. The model is identified via event day heteroskedasticity. We find that restrictive US trade policy shocks affect US and international stock prices heterogeneously, but generally negatively, increasing market uncertainty, lowering interest rates, and leading to an appreciation of the US-Dollar. The effects are significant for several weeks or quarters. Regarding shock types, we reveal a dominating trade policy uncertainty shock and a weaker level shock. Chinese trade policy shocks against the US further hurt US stocks.

Keywords: Trade policy shock; structural VAR; stock prices; exchange rates; interest rates; heteroskedasticity (search for similar items in EconPapers)
JEL-codes: C32 F13 F51 G10 (search for similar items in EconPapers)
Pages: 76 p.
Date: 2021
New Economics Papers: this item is included in nep-int and nep-isf
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Related works:
Journal Article: The multifaceted impact of US trade policy on financial markets (2023)
Working Paper: The multifaceted impact of US trade policy on financial markets (2020)
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