The Macroeconomic Effects of Trade Tariffs: Revisiting the Lerner Symmetry Result
Jesper Lindé and
Andrea Pescatori ()
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Andrea Pescatori: IMF
No 363, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)
We study the robustness of the Lerner symmetry result in an open economy New Keynesian model with price rigidities. While the Lerner symmetry result, i.e. the absence of allocative and trade-.ow effects of an equally-sized change in import tariff and export subsidy, holds up approximately for a number of alternative assumptions, we obtain quantitatively important long-term deviations under complete international asset markets. Direct pass-through of tariffs and subsidies to prices and slow exchange rate adjustment can also generate significant short-term deviations from Lerner. De- viations from symmetry, however, do not necessarily imply an impact on global output and are often limited to a redistribution of production and consumption across coun- tries. Finally, we quantify the macroeconomic costs of a trade war and find that they can be substantial, with permanently lower income and trade volumes. However, a fully symmetric retaliation to an unilaterally imposed border adjustment tax can prevent any sizable adverse real or nominal effects.
Keywords: Import Tariffs; Export Subsidies; Lerner Condition; Incomplete Markets; Complete Markets; Border Adjustment Tax; Trade War; New Keynesian open-economy model (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 70 pages
New Economics Papers: this item is included in nep-dge, nep-int, nep-mac and nep-opm
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Journal Article: The macroeconomic effects of trade tariffs: Revisiting the Lerner symmetry result (2019)
Working Paper: The Macroeconomic Effects of Trade Tariffs; Revisiting the Lerner Symmetry Result (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0363
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