Modeling Trade Tensions: Different Mechanisms in General Equilibrium

By Benjamin L Hunt, Susanna Mursula, Rafael A Portillo, Marika Santoro

December 11, 2020

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Benjamin L Hunt, Susanna Mursula, Rafael A Portillo, and Marika Santoro. Modeling Trade Tensions: Different Mechanisms in General Equilibrium, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

In this paper, we investigate the mechanisms through which import tariffs impact the macroeconomy in two large scale workhorse models used for quantitative policy analysis: a computational general equilibrium (CGE) model (Purdue University GTAP model) and a multi-country dynamic stochastic general equilibrium (DSGE) model (IMF GIMF model). The quantitative effects of an increase in tariffs reflect different mechanisms at work. Like other models in the trade literature, in GTAP higher tariffs generate a loss in terms of output arising from an inefficient reallocation of resources between sectors. In GIMF instead, as in other DSGE models, tariffs act as a disincentive to factor utilization. We show that the two models/channels can be broadly interpreted as capturing the impact of tariffs on different components of a country’s aggregate production function: aggregate productivity (GTAP) and factor supply/utilization (GIMF). We discuss ways to combine the estimates from these two models to provide a more complete assessment of the macro effects of tariffs.

Subject: Economic sectors, Financial crises

Keywords: General equilibrium, Nominal and real rigidities, Trade elasticity, Trade policy

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/279
Stock No:

WPIEA2020279
ISBN:

9781513561615
ISSN:

1018-5941

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