PDF iconDownload This Paper
Open PDF in Browser
Add Paper to My Library
Permalink
Using these links will ensure access to this page indefinitely
Copy URL

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

NBER Working Paper No. w26995

46 Pages Posted: 20 Apr 2020 Last revised: 6 Apr 2025

See all articles by Paul Bergin

Paul Bergin

University of California, Davis - Department of Economics

Giancarlo Corsetti

European University Institute; University of Cambridge; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 4 versions of this paper

Date Written: April 2020

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.

Suggested Citation

Bergin, Paul and Corsetti, Giancarlo, The Macroeconomic Stabilization of Tariff Shocks: What is the Optimal Monetary Response? (April 2020). NBER Working Paper No. w26995, Available at SSRN: https://ssrn.com/abstract=3580553

Paul Bergin (Contact Author)

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States

Giancarlo Corsetti

European University Institute ( email )

University of Cambridge ( email )

Centre for Economic Policy Research (CEPR)

London
United Kingdom

PDF iconDownload This Paper
Open PDF in Browser

Do you have a job opening that you would like to promote on SSRN?

Place Job Opening

Paper statistics

Downloads
31
Abstract Views
536
36 References
PlumX Metrics

Related Alerts