Hi, thanks for engaging! I thought I'd mention I posted an updated version that I'm quite excited about, available at the same link :)

RT @HannoLustig: Curious about the link between the role of the US as the world's supplier of safe assets and the dollar exchange rate? Ta…

Firm-to-firm trade frictions also of course influence intermediate goods trade. I was just pointing out that for consumer goods, effects differ depending on whether consumers buy via retailers or directly from abroad.

@Brad_Setser Great point. In that line of reasoning I think there could still be some pricing dynamics though not as clear-cut as the basic analysis I proposed

Yes, absolutely. And there's a lot of currency volatility there, so with US reciprocation, you can also get spillovers to unaffected goods via exchange rates.

@AlekseevME @hkust Absolutely :)

@ArielWein Thank you!!

Thank you!! Exactly. If you think of a frictionless demand elasticity (in classic trade models), I show there are demand-side frictions dampening quantity adjustment to shocks away from that. But LCP (due to persistence from its stickiness) gives you much less quantity dampening, so you get relatively large quantity adjustment for the price adjustment. The other thing which I didn't mention is that the incidence matters too -- where frictions are high (stickier importers, such as stickier firms) you can get quite a strong offsetting effect because the tariff effect is dampened a lot by the friction but the exchange rate effect isn't. Whereas where frictions are low, the tariff has a disproportionate effect on quantities that the exchange rate can't much offset. Again the key thing going on is that the stickiness of local currency pricing makes the exchange rate's influence on US import prices quite persistent which counteracts the dampening of the demand-side frictions. But again this is in terms of quantities - also because of the local currency pricing the exchange rate can't much offset the tariff in terms of inflation. And in US exports, where there is producer currency pricing, the exchange rate and tariff have similar pricing patterns so the only difference in quantity effects there depends on the persistences of the shocks. These results fall out as extensions of my job market paper analysis and I have some empirical work to this end that I'm in the process of packaging.

@ArielWein Good point, but not what I intended. In my work I show there are importing frictions dampening quantity adjustment to tariff/ER shocks, but dampening less if shocks' price effect (pass-through) is persistent, and LCP (from stickiness) makes pass-through very persistent.

@robin_j_brooks Exactly, thanks. Similar for others, note which may manage currencies less. I think some key factors (among others): demand for dollars less elastic, US importing has asymmetric influence, and dollar tends to strengthen in uncertain times like a trade war.

@AfricanCap Yes, the direct effect of a US trade war would be to strengthen the dollar. This is partly because demand for dollars is less elastic, and partly because the dollar tends to strengthen in uncertain times. The total effect would also depend on how the Federal Reserve responds

I have documented this fact for the 2018 tariff escalation in ongoing work (with my classmate Victor Orestes @Victor59887653 ) but I think it's pretty intuitive.

Economists can debate whether expansionary monetary policy is the right response to tariffs, but markets aren’t fully pricing that in -- at least not yet.

RT @AmSantacreu: A quick explainer on how tariffs affect exchange rates: When the US imposes tariffs on imports, it triggers a chain reacti…

RT @sarahmgertler: To clarify what I mean, in US imports there is local currency pricing, so an exchange rate appreciation won't offset the…

RT @KarstenMueIIer: 🚨 New Paper and Public Good🚨 "The Global Macro Database: A New International Macroeconomic Dataset", joint with @chenz…