The Macroeconomic Effects of...
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The Macroeconomic Effects of Protectionism Fabio Ghironi University of Washington, CEPR, and NBER Global Business Forum November 26, 2018
Transcript of The Macroeconomic Effects of...
The Macroeconomic Effects of Protectionism
Fabio Ghironi
University of Washington, CEPR, and NBER
Global Business Forum
November 26, 2018
Modeling the Macroeconomic Effects of Protectionism ● IMF, Fed: Multi-country, dynamic, general equilibrium, New Keynesian models with uncertainty (so-called DSGE models with nominal rigidity), including many “frictions” but no “deep” theory of trade. ● World Bank: So-called computable general equilibrium (CGE) multi-country models of trade, including richer specification of the sector structure of the economy but no explicit model of macro dynamics.
- CGE models have been occasionally extended to account for heterogeneity across firms in studies at the World Bank and elsewhere (example, the Peterson Institute for International Economics).
Example: IMF WEO, October 2018 ● Simulated consequences of protectionism:
Macro Needs Micro “I would like to know how the macroeconomic model that I more or less believe can be reconciled with the trade models that I also more or less believe. [...] What we need to know is how to evaluate the microeconomics of international monetary systems. Until we can do that, we are making policy advice by the seat of our pants.” Paul Krugman (1995), “What Do We Need to Know about the International Monetary System?” in Understanding Interdependence, edited by Peter Kenen, Princeton U Press.
Macro Meets International Trade ● Present-day, workhorse model of trade: Marc Melitz (2003, Econometrica): market power, producer entry into domestic and export markets, heterogeneous firms. ● Ghironi and Melitz (2005, Quarterly Journal of Economics): merger of Marc’s model with dynamic, general equilibrium macro under uncertainty. ● Alessandro Barattieri, Matteo Cacciatore, and I (2018, NBER WP):
- show evidence on dynamic effects of protectionism for small open economies (SOEs),
- and use Ghironi-Melitz SOE model with nominal rigidity to explain channels and perform counterfactuals (zero lower bound, fixed exchange rate).
Bown (2016, World Bank): Global Anti-Dumping Database ● Focus on Canada and Turkey. Size ● In Turkey, up to 5.3 percent of imported products are subject to temporary trade barriers over the period 1994-2009, amounting to 1 percent of GDP. ● For Canada, the percent of imported products is 2.2 percent, amounting to 0.4 percent of GDP.
−.02
−.01
0.0
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010
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1995q1 2000q1 2005q1 2010q1 2015q1
Antidumping Initiatives GDP Growth
Figure 1: Anti-dumping initiatives and real GDP growth, Canada
−.1
−.05
0.0
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010
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1995q1 2000q1 2005q1 2010q1 2015q1
Antidumping Initiatives GDP Growth
Figure 2: Anti-dumping initiatives and real GDP growth, Turkey.
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−.02
−.01
0.0
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010
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Antidumping Initiatives GDP Growth
Figure 1: Anti-dumping initiatives and real GDP growth, Canada
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010
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Antidumping Initiatives GDP Growth
Figure 2: Anti-dumping initiatives and real GDP growth, Turkey.
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Figure 3: Institutional details about antidumping investigations and applied antidumping tariffs.
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Figure 4: Quarterly VAR, one-standard deviation increase in antidumping initiatives in Canada. GDP growth and
net exports over GDP are in percentage points. The inflation rate is annualized.
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Figure 5: Quarterly VAR, one-standard deviation increase in antidumping initiatives in Turkey. GDP growth and
net exports over GDP are in percentage points. The inflation rate is annualized.
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Figure 4: Quarterly VAR, one-standard deviation increase in antidumping initiatives in Canada. GDP growth and
net exports over GDP are in percentage points. The inflation rate is annualized.
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Figure 5: Quarterly VAR, one-standard deviation increase in antidumping initiatives in Turkey. GDP growth and
net exports over GDP are in percentage points. The inflation rate is annualized.
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12
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Ta
riff
2000 2005 2010 2015Year
AUS
68
10
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Ta
riff
2000 2005 2010 2015Year
BRA
.6.8
11
.21
.41
.6T
ariff
2000 2005 2010 2015Year
CAN
02
46
81
0T
ariff
2000 2005 2010 2015Year
CHL
46
81
01
2T
ariff
2000 2005 2010 2015Year
COL2
34
56
Ta
riff
2000 2005 2010 2015Year
IDN
51
01
52
02
53
0T
ariff
2000 2005 2010 2015Year
IND
01
23
Ta
riff
2000 2005 2010 2015Year
ISL
11
.52
2.5
3T
ariff
2000 2005 2010 2015Year
ISR
56
78
91
0T
ariff
2000 2005 2010 2015Year
KOR
05
10
15
Ta
riff
2000 2005 2010 2015Year
MEX
12
34
5T
ariff
2000 2005 2010 2015Year
MYS
.6.8
11
.21
.4T
ariff
2000 2005 2010 2015Year
NOR
11
.52
2.5
3T
ariff
2000 2005 2010 2015Year
NZL
05
10
15
Ta
riff
2000 2005 2010 2015Year
PER
23
45
67
Ta
riff
2000 2005 2010 2015Year
PHL
24
68
10
12
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riff
2000 2005 2010 2015Year
PRY
01
02
03
0T
ariff
2000 2005 2010 2015Year
THA
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45
6T
ariff
2000 2005 2010 2015Year
TUR
46
81
01
2T
ariff
2000 2005 2010 2015Year
URY
33
.54
4.5
5T
ariff
2000 2005 2010 2015Year
ZAF
Figure 8: Weighted average of applied tariffs, 1999-2016.
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2 4 6 8 10
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Figure 9, Panel A: Panel-VAR, impulse responses to a one-standard deviation increase in detrended tariffs. Tariffs,
GDP growth, and net exports over GDP are in percentage points.
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Tariff
2 4 6 8 10-0.2
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NX over GDP
Figure 9, Panel B: Model-implied, annualized impulse responses to a tariff increase. The tariff shock matches size
and persistence of the equivalent shock in the panel VAR (Figure 9A). Tariffs, GDP growth, and net exports over
GDP are in percentage points.
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2 4 6 8 10
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Figure 9, Panel A: Panel-VAR, impulse responses to a one-standard deviation increase in detrended tariffs. Tariffs,
GDP growth, and net exports over GDP are in percentage points.
2 4 6 8 100
0.5
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1.5
Tariff
2 4 6 8 10-0.2
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2 4 6 8 10
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Inflation
2 4 6 8 10
0
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NX over GDP
Figure 9, Panel B: Model-implied, annualized impulse responses to a tariff increase. The tariff shock matches size
and persistence of the equivalent shock in the panel VAR (Figure 9A). Tariffs, GDP growth, and net exports over
GDP are in percentage points.
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5 10 15 20 25
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GDP
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Real Interest Rate
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Real Exchange Rate
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Number of Producers
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Number of Exportes
5 10 15 20 25
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×10 -4Average Firm Productivity
5 10 15 20 250
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Tariff
BenchmarkReal Model
Figure 10: Responses to a temporary increase in Home trade barriers in normal times, benchmark model (continuos lines) and an alternative version without
nominal rigidities (dashed lines). Responses show percentage deviations from the steady state. The inflation rate is annualized.
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10 20 30 40
-0.2
-0.1
0
Baseline
GDP
10 20 30 400
0.5
1
Inflation
10 20 30 40
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Trade Balance/GDP
10 20 30 40-1
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Real Exchange Rate
10 20 30 40
-0.1
-0.05
0
0.05
Finan
cial
Autarky
GDP
10 20 30 40
0
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Inflation
10 20 30 40-1
0
1Trade Balance/GDP
10 20 30 40
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0Real Exchange Rate
10 20 30 40
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NoEntry
GDP
10 20 30 40
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Trade Balance/GDP
10 20 30 40
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Real Exchange Rate
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NoCap
ital/E
ntry
GDP
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Inflation
10 20 30 40
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Trade Balance/GDP
10 20 30 40
-1.4-1.2-1
-0.8-0.6-0.4-0.2
Real Exchange Rate
Figure 11: Responses to a temporary increase in Home tariffs in normal times, flexible exchange rate. The top raw: baseline model; second raw: baseline model
under financial autarky; third raw: baseline model without firm dynamics; fourth raw: baseline model without firm dynamics and physical capital accumulation.
Responses show percentage deviations from the steady state. The inflation rate is annualized.
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Model versus Data
Conclusion ● Policy bottom line: Protectionism remains a bad idea, even when it is temporary, even when there is no retaliation, and even when the economy is in a liquidity trap or operating under a fixed exchange rate regime. ● Key to replicate and explain the effects of protectionism found in the data: inclusion of investment in physical capital and micro-level dynamics in the model.
