Do Import Tariffs Generate Stagflationary Tendencies?

Mohammed, Mikidadu (2018): Do Import Tariffs Generate Stagflationary Tendencies?

Abstract

The recent U.S. trade policy shift has reignited interest about the macroeconomic effects of import tariffs. This paper examines the impacts of import tariff shocks on U.S. macroeconomic performance using quarterly data from 1989-2017. Relying upon the estimation of structural VAR model with sign restrictions, the results suggest that tariff shocks on net-imported vital intermediate input, such as steel, trigger stagflationary tendencies as characterized by short-run increase in inflation and unemployment and decline in real output.

• Item Type: MPRA Paper
• Language: English
• Keywords: import tariff shocks, steel, stagflation, structural VAR
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables; F - International Economics > F1 - Trade > F10 - General; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade

References

Barsky, R.B., and L. Kilian. 2002. Do we really know that oil caused the great stagflation? A monetary alternative. In B.S. Bernanke and K. Rogoff (Eds.), NBER Macroeconomics Annual, 16: 137-183.

Ball, L., Leigh, D. and Loungani, P. 2013. Okun’s Law: Fit at 50? NBER Working Paper No. 18668. Barsky, R.B., S. Basu, and K. Lee. 2014. Whither news shocks? NBER Working Paper 20666.

Batra. R. 2003. Are tariffs inflationary? Review of International economics 9(3): 373-382.

Bernanke, B.S., M. Gertler, and M. Watson. 1997. Systematic monetary policy and the effects of oil price shocks. Brookings Papers on Economic Activity 1997(1): 91-142.

Blinder, A.S., and J.B. Rudd. 2008. The Supply-shock explanation of the Great Stagflation revisited. Working Paper 14563. Cambridge, Mass.: National Bureau of Economic Research.

Branson, W.H., and J. Rotemberg. 1980. International adjustment with wage rigidity. European Economic Review 13: 309-332.

Brock, W., 1974. Money and growth: the case of long-run perfect foresight. International Economic Review 15 (3): 750-777.

Bruno, M., and J. Sachs. 1985. Economics of worldwide stagflation, Harvard University Press, Harvard (USA).

Burbidge, J., and A. Harrison. 1984. Testing for the effects of oil-price rises using vector autoregressions. International Economic Review 25(2): 459-484.

Cochrane, J.H. 1998. What do the VARs mean? Measuring the output effects of monetary policy. Journal of Monetary Economics 41: 277-300.

Cologni, A., and M. Manera. 2008. Oil prices, inflation and interest rates in a structural cointegrated VAR model for the G-7 countries. Energy Economics 30: 856-888.

Davidson C., and S.J. Matusz. 2004. International trade and labor markets: Theory, evidence and policy implications. Mimeo: W.E. Upjohn Institute for Employment Research, Kalamazoo, Michigan.

Dogrul, H.G., and U. Soytas. 2010. Relationship between oil prices, interest rate, and unemployment: Evidence from an emerging market. Energy Economics 32: 1523-1528.

Egger H., and U. Kreickemeier. 2009. Firm heterogeneity and the labour market effects of trade liberalization. International Economic Review 50(1): 187-216.

Evans G.W. 1989. Output and unemployment dynamics in the United States: 1950-1985. Journal of Applied Econometrics 4: 213-237.

Freeman, D.G. 2001. Panel tests of Okuns Law for ten industrial countries. Economic Inquiry 39: 511-523.

Ghosh S. 2009. Import demand of crude oil and economic Growth: Evidence from India. Energy Policy 37(2): 699-702.

Hamilton, J.D. 1983. Oil and the macroeconomy since World War II. Journal of Political Economy 91(2): 228-248.

Harkness, J. 1982. Intermediate imports, expectations, and stochastic equilibrium under flexible exchange rates. Canadian Journal of Economics 15: 118-143.

Helpman E., and O. Itskhoki. 2010. Labor market rigidities, trade and unemployment. The Review of Economic Studies 77(3):1100-1137.

Helpman E., O. Itskhoki. And S. Redding. 2010. Inequality and unemployment in a global economy. Econometrica 78(4):1239-1283.

Hill, L.E. 1980. Reflections on stagflation and the energy crisis. Review of Social Economy 38(3): 289-292.

Huang, H. C. and Yeh, C. C. 2013. Okun's Law in panels of countries and state. Applied Economics 45(2): 191-199.

Ireland, P., 1994. Money and growth: an alternative approach. American Economic Review 55:1-14.

Janiak A. 2006. Does trade liberalization lead to unemployment? Theory and Some Evidence. ECARES, Universite Libre de Bruxelles.

Jimenez-Rodriguez, R. and M. Sanchez. 2005. Oil price shocks and real GDP growth: Empirical evidence for some OECD countries. Applied Economics 37: 201-228.

Kendrick, J. 1981. International comparisons of recent productivity trends. In Essays in Contemporary Economic Problems, Washington: American Enterprise Institute, (12570).

Kilian, L. 2009. Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review 99 (3): 1053-1069.

Kilian, L. 2010. Oil price shocks, monetary policy and stagflation. In Inflation in an era of relative price shocks, ed. by R. Fry, C. Jones, and C. Kent, RBA Annual Conference Volume. Reserve Bank of Australia.

Leduc S., and K. Sill. 2004. A quantitative analysis of oil price shocks, systematic monetary policy, and economic downturns. Journal Monetary Economics 51: 781-808.

Lee, J. 2000. The robustness of Okuns Law: Evidence from OECD countries. Journal of Macroeconomics 22 (2): 331-56.

Malinvaud, E. 1977. Theory of unemployment reconsidered. Oxford: Basil Blackwell.

Malley J. and Molana, H. 2008. Output, unemployment and Okuns Law: Some evidence from G7. Economics Letters 101: 113-15.

McConnell, C. R. Economics, 7th Edition, New York : McGraw-Hill

Mitra D. and P. Ranjan. 2007. Offshoring and unemployment, NBER Working Paper No. 13149

Mork, K., O. Olsen, and H. Mysen. 1994. Macroeconomic responses to oil price increases and decreases in Seven OECD countries. Energy Journal 15: 19-35.

Mountford A., and H. Uhlig. 2009. What are the effects of fiscal policy shocks? Journal of Applied Econometrics 24: 960-992.

Olson, M. 1982. Stagflation and the political economy of the decline in productivity. The American Economic Review 72(2): 143-148.

Peersman, G., and I. Van Robays. 2009. Oil and the Euro Area economy. Economic Policy 24(60): 603-651.

Pesaran, M. H., and Y. Shin. 1999. An autoregressive distributed lag modelling approach to cointegration analysis. In: Storm, S. (Ed.), Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium. Cambridge University Press, Cambridge. Chapter 11: 1-31.

Pesaran, M. H., Y. Shin, and R.J. Smith. 2001. Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics 16: 289326.

Peterson, W.C. 1980. Stagflation and the crisis of capitalism. Review of Social Economy 38(3): 277-287.

Prachowny, M.F.J. 1993. Okuns Law: Theoretical foundations and revised estimates. The Review of Economics and Statistics 75: 331-336.

Ramey V.A. 2016. Macroeconomic Shocks and Their Propagation. In J.B. Taylor and H. Uhlig (Eds.), Handbook of Macroeconomics 2: 71-162.

Rassekh, F., and O. Ranjbar. 2014. An empirical investigation of the Ratchet Effect in the OECD, 1985-2009. International Economic Journal 28(1): 183-190.

Sachs, J. 1982. Energy and growth under flexible exchange rates: A simulation study. In J.S. Bhandari and B.H. Putnam (Eds.), Economic interdependence and flexible exchange rates: 191-220. Cambridge: MIT Press.

Santini, D. J. 1985. The energy-squeeze model: energy price dynamics in US business cycles. International Journal of Energy Systems 5: 18-25.

Sidrauski, M., 1967. Rational choice and patterns of growth in a monetary economy. American Economic Review 57 (2): 534-544.

Sims, C.A. 1980. Macroeconomics and reality. Econometrica 48: 1-48.

Tobin, J., 1965. Money and economic growth. Econometrica 33: 671-684.

Uhlig H. 2005. What are the effects of monetary policy? Results from an agnostic identification procedure. Journal of Monetary Economics 52: 381-419.

US International Trade Commission. 2003. Steel-Consuming Industries: Competitive Conditions With Respect To Steel Safeguard Measures. Publication No. 3632. US International Trade Commission: Washington DC

von Arnim R., and K.P. Prabheesh. 2013. Rebalancing through expenditure and price changes. International Review of Applied Economics 27(4): 531-556.