Monetary Cooperation during Global Inflation Surges

Federica Romei and Luca Fornaro

No 1313, Working Papers from Barcelona School of Economics

Abstract: We study optimal monetary policy during times of global scarcity of tradable goods. The optimal monetary response entails a surge in inflation, which helps rebalance production to- wards the tradable sector. While the inflation costs are fully bore domestically, however, the gains in terms of higher supply of tradable goods partly spill over to the rest of the world. National central banks may thus fall into a coordination trap, and implement an excessively tight monetary policy causing an unnecessarily sharp global contraction.

Keywords: Capital flows; global Inflation; sectoral Reallocation; international monetary cooperation; global supply shortages; competitive exchange rate appreciations; trade imbalances. (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 F41 F42 (search for similar items in EconPapers)
Date: 2022-01
New Economics Papers: this item is included in nep-dge, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1313

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