The Multifaceted Impact of US Trade Policy on Financial Markets

76 Pages Posted: 2 Aug 2021 Last revised: 9 Jun 2022

See all articles by Lukas Boer

Lukas Boer

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin - Faculty of Economics

Malte Rieth

German Institute for Economic Research (DIW Berlin)

Date Written: July 1, 2021

Abstract

We study the multifaceted effects and persistence of trade policy shocks on financial markets in a structural vector autoregression. The model is identified via event day heteroskedasticity. We find that restrictive US trade policy shocks affect US and international stock prices heterogeneously, but generally negatively, increasing market uncertainty, lowering interest rates, and leading to an appreciation of the US-Dollar. The effects are significant for several weeks or quarters. Regarding shock types, we reveal a dominating trade policy uncertainty shock and a weaker level shock. Chinese trade policy shocks against the US further hurt US stocks.

Keywords: Trade policy shock, structural VAR, stock prices, exchange rates, interest rates, heteroskedasticity

JEL Classification: C32,F13,F51,G10

Suggested Citation

Boer, Lukas and Menkhoff, Lukas and Rieth, Malte, The Multifaceted Impact of US Trade Policy on Financial Markets (July 1, 2021). DIW Berlin Discussion Paper No. 1956, Available at SSRN: https://ssrn.com/abstract=3895690 or http://dx.doi.org/10.2139/ssrn.3895690

Lukas Boer

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, Berlin 10099
Germany

Lukas Menkhoff (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
Berlin
Germany

Malte Rieth

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
33
Abstract Views
267
PlumX Metrics