{
  "title": "Modeling Trade Tensions: Different Mechanisms in General Equilibrium",
  "publication": "IMF Working Papers, December 11, 2020",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2020/12/11/modeling-trade-tensions-different-mechanisms-in-general-equilibrium-49869",
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  "summary": "In this paper, we investigate the mechanisms through which import tariffs impact the macroeconomy in two large scale workhorse models used for quantitative policy analysis: a computational general equilibrium (CGE) model (Purdue University GTAP model) and a multi-country dynamic stochastic general e",
  "sections": [
    {
      "heading": "Overview and objective",
      "content": "- Investigates mechanisms through which import tariffs impact the macroeconomy using two large-scale workhorse models for quantitative policy analysis: a computational general equilibrium (CGE) model (Purdue University GTAP model) and a multi-country dynamic stochastic general equilibrium (DSGE) model (IMF GIMF model).\n- Objective: compare and interpret the distinct channels by which tariffs affect aggregate outcomes and discuss ways to combine model estimates for a more complete assessment."
    },
    {
      "heading": "Key findings: mechanisms and model interpretations",
      "content": "- GTAP (CGE) channel:\n  - Higher tariffs generate a loss in terms of output arising from an inefficient reallocation of resources between sectors.\n  - Effect interpreted as an impact of tariffs on aggregate productivity.\n- GIMF (DSGE) channel:\n  - Tariffs act as a disincentive to factor utilization (consistent with behavior in other DSGE models).\n  - Effect interpreted as an impact of tariffs on factor supply/utilization.\n- Synthesis:\n  - The two models/channels can be broadly interpreted as capturing impacts on different components of a country’s aggregate production function: aggregate productivity (GTAP) versus factor supply/utilization (GIMF).\n  - Combining estimates from both models provides a more complete assessment of the macro effects of tariffs."
    },
    {
      "heading": "Implications for quantitative policy analysis",
      "content": "- Model choice matters: quantitative effects of tariff increases reflect different underlying mechanisms that are model-specific.\n- Interpretation guidance:\n  - Use GTAP results to quantify reallocation and productivity-driven output losses.\n  - Use GIMF results to quantify disincentives to factor use and associated dynamic responses.\n- Combining approaches:\n  - Integrate insights from both productivity-channel and factor-utilization-channel estimates to capture broader macroeconomic effects of tariffs."
    },
    {
      "heading": "Keywords and topical focus",
      "content": "- Subject areas: Economic sectors, Financial crises\n- Keywords: general equilibrium, Nominal and real rigidities, trade elasticity, Trade policy\n\nModeling Trade Tensions: Different Mechanisms in General Equilibrium, IMF Working Paper No. 2020/279 (December 11, 2020).\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2020/12/11/modeling-trade-tensions-different-mechanisms-in-general-equilibrium-49869"
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    "Authors: Benjamin L Hunt, Susanna Mursula, Rafael A Portillo, Marika Santoro",
    "Published: December 11, 2020",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513561615.001",
    "Investigates mechanisms through which import tariffs impact the macroeconomy using two large-scale workhorse models for quantitative policy analysis: a computational general equilibrium (CGE) model (Purdue University GTAP model) and a multi-country dynamic stochastic general equilibrium (DSGE) model (IMF GIMF model).",
    "Objective: compare and interpret the distinct channels by which tariffs affect aggregate outcomes and discuss ways to combine model estimates for a more complete assessment.",
    "GTAP (CGE) channel:",
    "GIMF (DSGE) channel:",
    "Synthesis:",
    "Model choice matters: quantitative effects of tariff increases reflect different underlying mechanisms that are model-specific.",
    "Interpretation guidance:",
    "Combining approaches:",
    "Subject areas: Economic sectors, Financial crises",
    "Keywords: general equilibrium, Nominal and real rigidities, trade elasticity, Trade policy",
    "**Working Paper**"
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