Economics Dictionary of ArgumentsHome
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| Business cycle: The business cycle refers to the fluctuations in economic activity over time, including expansion, peak, contraction, and trough. It reflects changes in GDP, employment, and production, influenced by factors like investment, consumer demand, and government policies. These cycles are natural but vary in duration and intensity. See also Economy, Economic cycles, Economic boom, Depression._____________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. – Lexicon of Arguments. | |||
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IMF Working Papers on Business Cycle - Dictionary of Arguments
Ostry I 19 Business cycle/tariff policy//Furceri/Hannan/Ostry/Rose: Does the effect of tariff changes vary with the stage of the business cycle? Trade reforms, insofar as they induce resource shifts between industries, occupations and firms, might lead to larger output losses during slack periods of weak domestic economic activity. To test whether the effect of tariff changes is symmetric between expansions and recessions, we use the following setup, which permits the effect of tariff changes to vary smoothly across different stages of the business cycle: Ostry I 20 yi,t+k - yi,t-1 = αi + γt + βL kF(zi,t) iΔTi,t + βH (1- F(zi,t)ΔTi,t + φZi,t + εi,t with F(zi,t) = exp(-θzi,t)/(1+ exp(-θzi,t), θ>0, where zi,t is an indicator of the state of the economy (such as GDP growth or unemployment) normalized to have zero mean and unit variance, and Zit is the same set of control variables used in the baseline specification but now also including F(zit). F(.) is a smooth transition function used recently by Auerbach and Gorodnichenko (2012)(1) to estimate the macroeconomic impact of fiscal policy shocks in expansions as opposed to recessions. This transition function can be interpreted as the probability of the economy being in a recession; F(zit)=1 corresponds to a deep recession, while F(zit)=0 corresponds to strong expansion - with the cutoff between expansions and contractions being 0.5. Like Auerbach and Gorodichencko, we use θ = 1.5, which corresponds to assume that the economy spends about 20 percent of times in recessions.(2) >Economic cycles, >Tariffs, >Tariff impacts. Ostry I 21 (…) the response of both output and productivity to rises in the tariff is more dramatic during expansions. When tariffs increase by a standard deviation and the economy is enjoying good times, the medium-term loss in output is higher than the baseline by about 1%; the productivity decline is also larger. Consistently, tariff increases during recession seem to increase output and productivity in the mediumterm, though the effects are not statistically significant; protection during recessions may have a mild stimulating effect.(4) Overall, we find that tariff changes have more negative consequences for output and productivity when: tariffs increase (rather than decrease); for advanced economies (not emerging markets and developing economies); and during good economic conditions. While more work needs to be done to understand the channels for these effects better, they do not bode well for the present protectionist climate. One of the reasons why the impact of tariffs depends on the state of the business cycle could be related to the effect of tariffs on inflation and the role of monetary policies. To the extent that the increases in tariffs lead to an increase in inflation during expansions and that monetary policies are tightened in response, the negative impact of tariffs ismagnified due to the contractionary policy shock. Inflation: Our results* on inflation seem to support this reasoning; using the same regression-framework as for the other macroeconomic variables, we find that higher tariffs lead to an increase in inflation after two years (…) Ostry I 22 Furthermore, the effect on inflation is stronger during economic expansions than in recessions (…). These results are consistent with Barattieri, Cacciatore, and Ghironi (2018)(5) who find that protectionism acts as a supply shock by decreasing output and increasing inflation in the short run. They also find that protectionism leads to higher inflation which, in turn, prompts central banks to respond with a contractionary impulse. >Protectionism. * Davide Furceri, Swarnali A. Hannan, Jonathan D. Ostry, and Andrew K. Rose. (2019). Macroeconomic Consequences of Tariffs. IMF Working Paper. WP/19/9. International Monetary Fund. 1. Auerbach, Alan J., and Yuriy Gorodnichenko, 2012, “Measuring the Output Responses to Fiscal Policy,” American Economic Journal, vol. 4(2), pp. 1-27. 2. This approach is equivalent to the smooth transition autoregressive model developed by Granger and Terävistra (1993)(3). The results are robust different value of θ, and to substitute F(zit) with a dummy variable which takes value for F(zit) greater than 0.5. 3. Granger, Clive W. J., and Timo Terasvirta, 1993, Modelling Nonlinear Economic Relationships (New York: Oxford University Press). 4. In line with Rose (2013), we find no statistically significant correlation between changes in tariffs and the measure of state of economy used in the paper. In particular, the correlation between changes in tariffs and the smooth transition function F(z,it) is -0.001. 5.Barattieri, Alessandro, Matteo Cacciatore, and Fabio Ghironi, 2018, “Protectionism and the Business Cycle,” NBER Working Paper No. 24353._____________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. If a German edition is specified, the page numbers refer to this edition. |
IMF Working Papers Ostry I Jonathan D. Ostry Davide Furceri Andrew K. Rose, Macroeconomic Consequences of Tariffs. IMF Working Paper. WP/19/9.International Monetary Fund. Washington, D.C. 2019 |
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