The Macroeconomic Stabilization of Tariff Shocks: What is the Optimal Monetary Response?

Paul Bergin and Giancarlo Corsetti

No 26995, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: F4 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-cba, nep-dge, nep-int, nep-mac and nep-mon
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Citations: View citations in EconPapers (8)

Published as Paul R. Bergin & Giancarlo Corsetti, 2023. "The macroeconomic stabilization of tariff shocks: What is the optimal monetary response?," Journal of International Economics, .

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Related works:
Working Paper: The Macroeconomic Stabilization of Tariff Shocks: What is the Optimal Monetary Response? (2023)
Working Paper: The Macroeconomic Stabilization Of Tariff Shocks: What Is The Optimal Monetary Response? (2020)
Working Paper: The Macroeconomic Stabilization of Tariff Shocks: What is the Optimal Monetary Response? (2020)
Working Paper: The Macroeconomic Stabilization of Tariff Shocks: What is the Optimal Monetary Response? (2020)
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