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The Multifaceted Impact of US Trade Policy on Financial Markets

Referierte Aufsätze Web of Science

Lukas Boer, Lukas Menkhoff, Malte Rieth

In: Journal of Applied Econometrics 38 (2023), 3, S. 388-406


We study the multifaceted effects of trade policy shocks on financial markets using a structural vector autoregression identified via event day heteroskedasticity. We find that restrictive US trade policy shocks affect US and international stock prices heterogeneously, but generally negatively. They increase market uncertainty, lower US interest rates, and lead to an appreciation of the US dollar. The effects are significant for several weeks or quarters. Decomposing the trade policy shocks further suggests that trade policy uncertainty dominates tariff level effects. Chinese trade policy shocks against the United States further hurt US stocks.

Lukas Menkhoff

Senior Research Associate in the Macroeconomics Department

Malte Rieth

Research Associate in the Macroeconomics Department

Keywords: Monetary.policy, tariffs, identification