Tariffs as Cost-Push Shocks: Implications for Optimal Monetary Policy

Iván Werning, Guido Lorenzoni () and Veronica Guerrieri

No 33772, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the optimal monetary policy response to the imposition of tariffs in a model with imported intermediate inputs. In a simple open-economy framework, we show that a tariff maps exactly into a cost-push shock in the standard closed-economy New Keynesian model, shifting the Phillips curve upward. We then characterize optimal monetary policy, showing that it partially accommodates the shock to smooth the transition to a more distorted long-run equilibrium—at the cost of higher short-run inflation.

JEL-codes: E5 E6 F4 (search for similar items in EconPapers)
Date: 2025-05
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mon and nep-opm
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