Celine Poilly, Aix-Marseille University

"Regional Trade Policy Uncertainty"

Abstract

This paper studies trade policy uncertainty at the regional level. First, we propose an empirical measure of regional trade policy uncertainty, based on the volatility of national import tariffs at the sectoral level and the sectoral composition of imports in US states. We show that a region which is more exposed to an unanticipated increase in tariff volatility suffers from a drop in real output and employment, relative to the average US state. Then, we build a regional open economy model to investigate the transmission channels of trade policy uncertainty shocks. In the presence of nominal rigidities, the interaction of households' precautionary savings and monopolists' precautionary pricing explains the magnitude of the measured recessionary effects of increased trade policy uncertainty. Our model highlights the amplification of these effects in regions most integrated in international trade through a higher import share and export intensity.

Joint with Fabien Tripier.

Contact person: John Vincent Kramer