A1442
Title: Inflationary effects of tariffs and the role of firm level characteristics: A 2-D Bernstein polynomial quantile approach
Authors: Utsav Bahl - Cambridge University (United Kingdom) [presenting]
Peter Pedroni - Williams College (United States)
Abstract: The purpose is to combine macro-level data with a large-scale Compustat panel of firm-level observations to investigate the role of firm-level characteristics in determining the timing and magnitudes of the transmission of tariffs to inflationary responses. In particular, a blended local projection and structurally identified vector auto-regression approach are used to obtain firm-level markup responses to two structurally identified macro-level broad economy-wide tariff shocks: an input cost component and a domestic competition component. The firm-level responses to these shocks are used as elements in two-dimensional Bernstein polynomial quantile regressions, for which the response horizon represents one of the array dimensions and firm characteristics represent the other array dimension. This framework allows investigating the dynamic consequences of counterfactuals at the firm-level by altering the distribution of firm characteristics to assess how targeted interventions would change aggregate pass-through. Preliminary results suggest that a tariff shock induces a reallocation of sales toward low-markup firms, dampening the aggregate markup response, yet inflationary pressures persist. Importantly, financial structure emerges as a key margin: firms with shorter debt maturities display stronger inflationary pass-through, and the counterfactuals indicate that targeted extensions of debt horizons can directly mitigate tariff-induced inflationary pressures.
