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We study the robustness of the Lerner symmetry result in an open economy New Keynesian model with price rigidities. While the Lerner symmetry result of no real effects of a combined import tariff and export subsidy holds up approximately for a number of alternative assumptions, we obtain quantitatively important long-term deviations under complete international asset markets. Direct pass-through of tariffs and subsidies to prices and slow exchange rate adjustment can also generate significant short-term deviations from Lerner. Finally, we quantify the macroeconomic costs of a trade war and find that they can be substantial, with permanently lower income and trade volumes. However, a fully symmetric retaliation to a unilaterally imposed border adjustment tax can prevent any real or nominal effects.

Tariff --- Ad valorem tariff --- Border taxes --- Customs (Tariff) --- Customs duties --- Duties --- Fees, Import --- Import controls --- Import fees --- Tariff on raw materials --- Commercial policy --- Indirect taxation --- Revenue --- Customs administration --- Favored nation clause --- Non-tariff trade barriers --- Reciprocity (Commerce) --- Econometric models. --- Exports and Imports --- Foreign Exchange --- Taxation --- Monetary Policy --- Central Banks and Their Policies --- Trade Policy --- International Trade Organizations --- Trade: General --- Public finance & taxation --- Currency --- Foreign exchange --- International economics --- Tariffs --- Exchange rates --- Imports --- Real exchange rates --- Export subsidies --- Taxes --- International trade --- United States

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Zonder onderwerpscode: economie

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We propose a macroeconomic model with a nonlinear Phillips curve that has a flat slope when inflationary pressures are subdued and steepens when inflationary pressures are elevated. The nonlinear Phillips curve in our model arises due to a quasi-kinked demand schedule for goods produced by firms. Our model can jointly account for the modest decline in inflation during the Great Recession and the surge in inflation during the Post-Covid period. Because our model implies a stronger transmission of shocks when inflation is high, it generates conditional heteroskedasticity in inflation and inflation risk. Hence, our model can generate more sizeable inflation surges due to cost-push and demand shocks than a standard linearized model. Finally, our model implies that the central bank faces a more severe trade-off between inflation and output stabilization when inflation is high.

Macroeconomics --- Economics: General --- Inflation --- Production and Operations Management --- Banks and Banking --- Economic Theory --- Money and Monetary Policy --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- Price Level --- Deflation --- Business Fluctuations --- Cycles --- Prices, Business Fluctuations, and Cycles: Forecasting and Simulation --- Interest Rates: Determination, Term Structure, and Effects --- Macroeconomics: Production --- Agriculture: Aggregate Supply and Demand Analysis --- Prices --- Economic & financial crises & disasters --- Economics of specific sectors --- Banking --- Economic theory & philosophy --- Monetary economics --- Output gap --- Production --- Central bank policy rate --- Financial services --- Demand elasticity --- Economic theory --- Interest rate floor --- Monetary policy --- Currency crises --- Informal sector --- Economics --- Interest rates --- Elasticity --- Cuba