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The Macroeconomic Stabilization of Tariff Shocks: What is the Optimal Monetary Response? / Paul R. Bergin, Giancarlo Corsetti.
- Format:
- Book
- Author/Creator:
- Bergin, Paul R.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w26995.
- NBER working paper series no. w26995
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2020.
- Summary:
- 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.
- Notes:
- Print version record
- April 2020.
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