Type: Working Paper
The macroeconomic stabilization of tariff shocks : what is the optimal monetary response?
Working Paper, EUI RSC, 2023/17, Pierre Werner Chair Programme
BERGIN, Paul, CORSETTI, Giancarlo, The macroeconomic stabilization of tariff shocks : what is the optimal monetary response?, EUI RSC, 2023/17, Pierre Werner Chair Programme - https://hdl.handle.net/1814/75442
Retrieved from Cadmus, EUI Research Repository
In the wake of Brexit and Trump trade war, central banks face the need to reconsider the role of monetary policy in managing the inflationary-recessionary effects of hikes in tariffs. Using a New Keynesian model enriched with global value chains and firm dynamics, we show that the optimal monetary response is expansionary. It supports activity and producer prices at the expense of aggravating short-run headline inflation---contrary to the prescription of the standard Taylor rule. This holds all the more when the home currency is dominant in pricing of international trade.
Cadmus permanent link: https://hdl.handle.net/1814/75442
Series/Number: EUI RSC; 2023/17; Pierre Werner Chair Programme
Publisher: European University Institute
Files associated with this item
- RSC WP 2023-17.pdf
- Full-text in Open Access