The Effects of Trade Policy Uncertainty on Exporters and Multinational Firms [link]

Recently, there has been a large increase in trade policy uncertainty, while multinational firms (MNEs) have become increasingly important in the economy. The trade policy uncertainty literature, however, has limited its attention to models with exporters only. This paper builds a novel two-country RBC model where firms can choose to serve their domestic market only, or to also sell to the foreign country either as an exporter or by operating as a MNE. The model features endogenous exporting and MNE entry and exit, where firms need to pay per-period entry or continuation cost. Import tariff uncertainty leads to higher masses of exporters and MNEs, which leads to a surprising result: as MNEs tend to be the more productive firms in the economy, a heightened trade policy uncertainty could lead to an increase in productivity in the long term. This result is robust to the choice of RBC and DSGE models, and allows us to reconcile the disagreements about trade policy uncertainty effect among the current literature.

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The Volatility of Economic Policy Uncertainty (with Paul Kattuman) [link]

Theory as well as empirics suggest that both the level and the volatility of uncertainty impact economic variables. Extending the study of uncertainty to the volatility of uncertainty, we analyse the dynamics of the Economic Policy Uncertainty index Baker et al. (2016) and find that for four major economies in Europe -- France, Germany, Italy and the UK -- between 1997 and 2019, considerable portions of both the level and the volatility of economic policy uncertainty were generated by spillovers. Volatility spillovers were more prominent during crisis periods. These findings are relevant to the appraisal of policy uncertainty episodes in major trading partners.

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Revisiting the Trade Policy Uncertainty Index [link]

Newspaper coverage-based uncertainty measures are made popular by Baker et al. (2016), who created the Trade Policy Uncertainty (TPU) index by analyzing appearances of uncertainty-, economy-, policy- and trade-related search terms. This paper shows their set of search terms leads to systematic inaccuracies such as misclassification and omission of articles. I then construct an improved U.S. TPU index by expanding and modifying the set of search terms, and restricting attention to national newspapers. The new set of search terms uncovers 31 times more articles, and the individual newspaper-level series that aggregate up to the new TPU index are more highly correlated, hence agreeing more with each other about the movements of U.S. trade policy uncertainty. I also provide a detailed mapping between major U.S. trade policy events and the new U.S. TPU index, and shows that Baker et al.'s (2016) U.S. TPU index sometimes mistakes financial market and political uncertainty for trade policy uncertainty.

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