Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/251296 
Year of Publication: 
2021
Series/Report no.: 
Working Papers No. 2021-25
Publisher: 
Banco de México, Ciudad de México
Abstract: 
This paper studies the macroeconomic impact of higher tariffs using a two-country DSGE model with endogenous trade and heterogeneous firms. The analysis consists of two scenarios. First, we assume that one country increases tariffs while the other does not. Second, both countries raise tariffs. In the first case, the country that did not raise tariffs suffers an economic contraction due to lower external demand. In turn, the one that imposed higher tariffs ends with a slight gain in output triggered by a surge in internal consumption originated from the transfer of tariff revenue to households. In the second case, however, both countries suffer a significant drop in exports, reducing dividends and wages paid, and decreasing consumption and output.
Subjects: 
Endogenous Trade
Firm Heterogeneity
Firm Dynamics
Tariffs
JEL: 
F12
F13
F17
F41
F62
Document Type: 
Working Paper
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