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• New measures of trade policy uncertainty are constructed using firm-level and aggregate data. • Trade policy uncertainty reduced U.S. investment by about 1.5% in 2018. • Open-economy DSGE Model with heterogeneous firms and nominal rigidities analyzes news and uncertainty about future tariffs. This paper studies the effects of unexpected changes in trade policy uncertainty (TPU) on the U.S. economy. Three measures of TPU are constructed using newspaper coverage, firms’ earnings calls, and tariff rates. Firm-level and aggregate macroeconomic data reveal that increases in TPU reduce business investment. The empirical results are interpreted through the lens of a two-country general equilibrium model with nominal rigidities and firms’ export participation decisions. News and increased uncertainty about higher future tariffs reduce investment and activity.
Caldara et al. (Fri,) studied this question.