Regional Trade Policy Uncertainty

Céline Poilly () and Fabien Tripier
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Céline Poilly: AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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Abstract: Higher uncertainty about trade policy has recessionary effects in U.S. states. First, this paper builds a novel empirical measure of regional trade policy uncertainty, based on the volatility of national import tariffs at the sectoral level and the sectoral composition of imports in U.S. states. We show that a state which is more exposed to an unanticipated increase in tariff volatility suffers from a larger drop in real output and employment, relative to the average U.S. state. We then build a regional open-economy model and we argue that the transmission channels of uncertainty shocks, in particular the precautionary-pricing channel, are magnified in regions that feature the highest import share and a strongest export intensity. Furthermore, we show that an expansionary monetary policy may amplify the regional divergence since it worsens the recession in the most-exposed region to trade policy uncertainty.

Keywords: Uncertainty Shocks; Regional Effects; Precautionary Pricing; Monetary Policy; JEL classification: E32 E52 F41 Uncertainty Shocks Regional Effects Precautionary Pricing Monetary Policy; JEL classification: E32; E52; F41 Uncertainty Shocks (search for similar items in EconPapers)
Date: 2023-09
Note: View the original document on HAL open archive server: https://amu.hal.science/hal-04239322v1
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Working Paper: Regional Trade Policy Uncertainty (2023)
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