The Optimal Monetary Policy Response to Tariffs

Javier Bianchi and Louphou Coulibaly

No 810, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: What is the optimal monetary policy response to tariffs? This paper explores this question within an open-economy New Keynesian model and shows that the optimal monetary policy response is expansionary, with inflation rising above and beyond the direct effects of tariffs. This result holds regardless of whether tariffs apply to consumption goods or intermediate inputs, whether the shock is temporary or permanent, and whether tariffs address other distortions.

Keywords: Tariffs; Inflation; Optimal monetary policy (search for similar items in EconPapers)
JEL-codes: E24 E44 E52 F13 F41 (search for similar items in EconPapers)
Date: 2025-03-07
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmwp:99705

DOI: 10.21034/wp.810

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