About QUEST Trade Analytics
Trade policies (FTA agreements, tariff barriers, non-tariff measures, etc.) affect not only consumption and production
via price and quantity effects, but also affect employment, revenues (private and public), and societal welfare. What
makes these policies so potent is that their impacts go beyond the countries applying them and have pervasive effects
in other countries which directly or indirectly trade with them (via imports and exports of goods and services) as standalones,
or as part of global supply chains.
With the emergence in recent months of trade tensions between the US and key trading partners such as China, the EU, Mexico,
and Canada due to tariffs proposed by the Trump Administration, there is a growing interest in understanding and quantifying
the impacts of trade policies in general and import tariffs in particular on consumption and production. As a result, in the US and
elsewhere, quantitative trade policy models are being adapted to provide comprehensive answers at the national level to assist policy
makers as well as to offer industry-specific and company-specific answers to businesses that could be adversely impacted by tariffs.
EY’s Quantitative Economics and Statistics (QUEST) group can help organizations quantify the effects the impacts of all types of
trade policies at the industry and company level. For example, import tariffs can affect consumer and producer prices by altering the
relationship between domestic and world prices. As such, they affect both consumers’ real income (i.e., purchasing power) and the cost of
domestic production by raising imported intermediate input prices and imported final good prices as well as prices of comparable domestic
goods produced locally.
QUEST proposes a wide range of quantitative tools to help companies assess policy impacts.
A list of QUEST’s capabilities is provided in the following section:
Our capabilities
- Computable general equilibrium (CGE) models
Computable general equilibrium (CGE) models are useful to estimate economy-wide effects of trade policies. They combine:
• Input-output modeling of inter-industry linkages,
• Multiple product and factor markets that are brought into equilibrium under specific behavioral assumptions for
economic agents and macroeconomic constraints, and
• Representative households with different income levels.
CGE models can quantify trickledown effects of trade-induced price changes in any industry on the rest of the economy in terms of changes in output and
value added, employment, and distributional impacts on representative households.
- Gravity models of trade flows
Gravity models allow assessing the extent of trade creation and trade diversion due to import tariffs, corporate tax, VAT, or
adherence by a country to a bilateral or regional trade agreement while controlling for a wide number of economic and political factors.
- Pass-through models
Pass-through models can help predict how much of a price-induced change in trade policy will be borne by consumer or producers.
They typically consist of:
• Econometric estimation of exchange rate pass-through to import and export prices.
• Econometric estimation of border price pass-through to domestic prices to enable calculations of how much tariff
adjustment is borne by producers or consumers.
• Bilateral exchange rate adjustments between the US and its trading partners due to US import tariffs and possible
retaliatory tariffs to estimate changes to offset any tariff impact.
- Wage-price models
Wage-price models are useful to determine how trade-induced price changes affect industry wages by linking border
price changes to wage-price elasticities.
- Household models
Household models can help estimate trade-induced changes in expenditure patterns of representative households based on price,
cross-price, and income elasticities of demand estimated from household consumption survey data.
- Calculation of all types of indicators of price distortions
of trade measures at the producer and consumer level
• Nominal protection rate (NRP)
• Effective rate of protection (ERP)
• Nominal rate of assistance (NRA)
• Effective rate of assistance (ERA)
• Producer subsidy equivalent (PSE)
- Calculation of all types of indicators of sectoral and
geographical orientation of trade
• Degree of offshoring
• Vertical specialization
• Intra-industry trade index
• Similarity index
• Trade overlap index
• Margins of export growth
• Export diversification
• Revealed comparative advantage index
• Revealed technology content index
• Revealed factor intensities
• Regional intensity of trade
• Trade complementarity index
Ad hoc econometric modeling of:
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Trade flows
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Pass-through elasticities
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Wage-price elasticities
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Household consumption patterns
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All type of indicators price distortions of trade measuress
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All types of indicators of sectoral and geographical orientation of trade
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CGE overlapping generation model with trade components
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The EY Tariff - Trade Modeling Tool