The Macroeconomic Effects of Trade Tariffs: Revisiting the Lerner Symmetry Result

Jesper Lindé and Andrea Pescatori

No 2017/151, IMF Working Papers from International Monetary Fund

Abstract: We study the robustness of the Lerner symmetry result in an open economy New Keynesian model with price rigidities. While the Lerner symmetry result of no real effects of a combined 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. 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 a unilaterally imposed border adjustment tax can prevent any real or nominal effects.

Keywords: WP; Import Tariffs; Export Subsidies; Lerner Condition; Incomplete Markets; Complete Markets; Border Adjustment Tax; Trade War; New Keynesian open-economy model; import tariff; trade share; import tariff hike; home economy; import sector; import price net; price distortion; exchange rate appreciation; PCP export price; home import; steady state import share; tariff case; Tariffs; Exchange rates; Imports; Real exchange rates; Global (search for similar items in EconPapers)
Pages: 54
Date: 2017-07-07
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=44990 (application/pdf)

Related works:
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 (2018)
Working Paper: The Macroeconomic Effects of Trade Tariffs: Revisiting the Lerner Symmetry Result (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2017/151

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().