Blog: Tariffs as Exogenous Shocks
When the unexpected is expected, is it still exogenous?
In the classic 1942 movie, Casablanca, the head of the French police is ordered by his Nazi superiors to close down Rick's Cafe. He does so saying that he's shocked gambling is going on there even as someone hands him his winnings.
The recent tariffs have affected markets much like the closing of Rick's Cafe. Everyone in the markets knew it would be bad news once they went into effect. We've been hearing about them for months. But once the tariffs were imposed, markets acted surprised. Like they never saw it coming. In economic/market terms it was like an exogenous shock. But was it really?
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