Title: Estimating the aggregate effects of border adjustments
Authors: Nora Traum - HEC Montreal (Canada) [presenting]
Matteo Cacciatore - HEC Montreal (Canada)
Abstract: An estimated, quantitative international business-cycle model is demonstrated to be able to account simultaneously for international cross-country comovements, exchange rate dynamics and trade flows. We estimate the model using Bayesian methods with U.S. and trade-weighted aggregates for the rest of the world. We show the estimated model implies a substantial influence of U.S. sourced disturbances on the rest of the world, helping reconcile cross-country comovement between the model and data. We then combine Bayesian prior and posterior analyses to quantify the effects of the U.S. adopting a border-adjustment tax (BAT). While the model is a priori uncertain about the size and sign of the effects of a BAT on GDP, posterior estimates significant, small contraction.