Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/320138 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11917
Publisher: 
CESifo GmbH, Munich
Abstract: 
Imports feature at all stages of production as well as in final consumption, and this is key to how tariff shocks play out. If imposed on imports in upstream sectors, import tariffs lower domestic output in downstream sectors; if imposed downstream, they raise upstream production. The aggregate effect of tariffs can be recessionary or expansionary–depending on the strength of upstream and downstream effects. Tariffs raise inflation no matter what, but how persistently they do so also depends on the network structure. We establish these results in a New Keynesian small open-economy model with an input-output network and provide supporting evidence based on US import tariffs. Simulating the "Liberation Day" tariff package, we find it highly stagflationary.
Subjects: 
tariffs shocks
business cycle
upstream sectors
downstream sector
input-output network
monetary policy
inflation
JEL: 
F41
E32
Document Type: 
Working Paper
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