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July 17, 2020

Trade policy analysis with a gravity model


In this CPB Background Document we investigate the use of the standard structural gravity model for trade policy analysis at the CPB. The model is intended for long term analyses of trade policy changes and is based on a simple general equilibrium framework. The model is useful despite its simplicity, because it has a good empirical fit. We investigate it by applying the gravity model to both a US trade war scenario and different Brexit scenarios.