Economics Dictionary of ArgumentsHome
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| Method: a method is a procedure agreed on by participants of a discussion or research project. In the case of violations of a method, the comparability of the results is in particular questioned, since these no longer come from a set with uniformly defined properties of the elements._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Dictionary of Arguments. | |||
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Felipe Benguria on Method - Dictionary of Arguments
Benguria I 2 Method/tariffs responsivity/Benguria/Saffie: (…) a key challenge is the potential anticipation of economic agents. In fact, two months earlier, a presidential memorandum had announced the study of “reciprocal” tariffs with the goal of reducing bilateral trade deficits, and the date for the April 2 tariff announcement had been set and publicized in advance. Thus, part of the impact on financial markets could have been absorbed before the announcement. Solution/method: We overcome this challenge by decomposing these tariffs into a component which is a function of bilateral deficits, which could have been potentially anticipated by markets, and an arguably unanticipated component due to the rounding up of the continuous deficit measure to the nearest next whole number or to the baseline 10% tariff rate. For stock prices, we use data on all listed firms in Compustat Global and find that the round-up component had a negative and statistically significant impact on stock market prices. The magnitude is such that a one percentage point higher tariff is associated with a 0.23% decline in stock prices. The impact of the potentially anticipated deficit component was also negative but an order of magnitude smaller, suggesting it had in fact been to a large extent anticipated. Strenghtening these results, we see that this negative impact of the round-up component was stronger for tradable-sector firms than for service-sector firms, in line with the fact that tariffs affect tradable-sector firms more directly than service-sector firms. For large countries, the US tariff annoucement could be read as also implying future retaliation, given that several large countries have retaliated to US tariffs in the past. We find that our results are robust to excluding these large countries from the sample. In addition, the tariff announcement listed a small set of product exclusions. We also find the results hold after removing firms in those industries. Our findings imply that, in any context, it is critical to distinguish between the anticipated and unanticipated components of a policy when studying its effects on financial markets. In the case of exchange rates, we again observe that the round-up component drives the results. Benguria I 3 (…) we provide a simple model that departs from the standard model of trade and exchange rates by adopting more realistic assumptions about invoicing currencies and about trade reallocation in response to tariffs. In line with recent empirical findings [Boz et al., 2022](1), we assume that countries facing US tariffs export to the US invoicing in dollars, and they export to the rest of the world in a combination of their own currency (i.e., producer currency) and US dollars. >Tariffs responsivity, >Currency appreciation/depreciation. 1. E. Boz, C. Casas, G. Georgiadis, G. Gopinath, H. Le Mezo, A. Mehl, and T. Nguyen. Patterns of invoicing currency in global trade: New evidence. Journal of International Economics, 136:103604, 2022._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. "Vs" indicates differences in content, not necessarily the chronological progression of a controversy. If a German edition is specified, the page numbers refer to this edition. |
Benguria I Felipe Benguria Felipe Saffie Rounding up the Effect of Tariffs on Financial Markets: Evidence from April 2, 2025. NBER Working Paper 34036 http://www.nber.org/papers/ 1050. Cambridge, MA 2025 |
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