How Do First and Second Moment Trade Policy Shocks Affect Firm Export Activities? ( Job Market Paper)

This paper studies empirically and theoretically the link between trade policy uncertainty (TPU) and firm export activities. I combine data on country-product level tariff change policy announcements with country-level news-text-based TPU indices to separately identify the effects of expectation (first-moment) and uncertainty (second-moment) shocks of trade policy. Firm-level supply chain data from over 45 countries reveal that after controlling for expected future tariffs: (1) an increase in uncertainty decreases the measure of exporters up to 2 percent over 4 quarters; (2) higher uncertainty reduces the firm exit probability by generating an option cost to re-entry; (3) firms more highly exposed to the U.S market are more resilient to trade policy uncertainty. The empirical results are interpreted through the lenses of a two-country general equilibrium model with nominal rigidities, firms’ export participation decisions, and first- and second-moment shocks to tariffs. I find that a 1 percent increase in both the expected value and standard deviation of tariff rates reduces GDP by 0.36 percent in the first 4 periods following the shock; of this, about 47 percent (0.17 percentage points) can be attributed to firm responses to higher tariff rate uncertainty.

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An Anatomy of Exports Around Economic Downturns.

with Samuel Pienknagura, IMF Working Paper (forthcoming)

This paper empirically characterizes the mechanics of export adjustment during economic downturns using product-level bilateral trade flow data from 1970 to 2019. We develop a uniform definition of domestic economic construction shocks across 170 countries and use the local projection method to investigate trade adjustments based on different time windows. Economic contractions significantly and negatively affect both extensive and intensive margins. The extensive and intensive margins recover three periods after one year of GDP drops; however, the effects are more persistent with cumulative two-year GDP decreases. Furthermore, the adjusted export value is mainly driven by the changes in intensive margin for existing varieties. Nonetheless, our results also indicate that exporters start to re-enter the market in 3 periods following the shock.

Effects of Economic Contractions on Extensive Margin and Intensive Margin

The shaded area is the 90 percent confidence interval.

How Disruptive are Tariff Shocks to the Multi-Stage Global Value Chain? (In progress)

Supply chain disruptions negatively affect export and import countries, but the effects are heterogeneous across industries. This paper studies the impacts of supply chain disruptions across different stages of goods by building a two-stage, multi-country, multi-sector general equilibrium model. Using the World Input-Output Database (WIOD), the model validates that the increased tariffs on Chinese upstream intermediate goods have stronger effects on US firms. It shows that in terms of aggregate real income, the trade war decreased the GDP in both China and the U.S, and benefited substitute countries.

The Change of U.S Import Share between 2017 and 2019

Changes in Real income

Exchange Rate and Fiscal Imbalances (In progress)

This paper analyzes links between fiscal imbalances and the exchange rate. The present value of future government surplus value to current debt value can lead the exchange rate to move. A 1% higher government surplus-to-debt ratio is associated with a 0.4% stronger currency, when I consider the exchange rate relative to the US dollar. And it is associated with a 0.36% stronger currency when I consider the trade-weighted exchange rate. The relationship that a higher government surplus-to-debt ratio causes a higher exchange rate is more significant in a developed country. And for the US, the realized government surplus-to-debt ratio can predict a stronger US dollar in the next 1-12 quarters, but this result is not valid in most countries.