Salle 3001

Gernot MULLER (Tuebingen University) “The Propagation of Tariff Shocks via Production Networks”

Abstract: A tariff on final goods shifts expenditure toward domestically produced goods and therefore constitutes a positive demand shock. By contrast, a tariff on intermediate goods raises production costs for domestic firms and thus constitutes a negative supply shock. The overall impact of import tariffs depends on the structure of the economy’s input–output network. While tariffs unambiguously raise inflation, the persistence of inflationary effects depends on the network structure. We establish these results in a New Keynesian small open-economy model with an input–output network and provide supporting evidence based on sectoral time-series data, showing that tariffs are contractionary on average.

 Organizer :  Olivier LOISEL