American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Monetary Cooperation during Global Inflation Surges
American Economic Review
(pp. 164–88)
Abstract
We study optimal monetary policy during times of global scarcity of tradable goods. The optimal monetary response entails a surge in inflation, which helps rebalance production toward the tradable sector. While the inflation costs are fully borne domestically, however, the gains in terms of higher supply of tradable goods partly spill over to the rest of the world. National central banks may thus fall into a coordination trap and implement an excessively tight monetary policy causing an unnecessarily sharp global contraction.Citation
Fornaro, Luca, and Federica Romei. 2026. "Monetary Cooperation during Global Inflation Surges." American Economic Review 116 (1): 164–88. DOI: 10.1257/aer.20231018Additional Materials
JEL Classification
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E31 Price Level; Inflation; Deflation
- E32 Business Fluctuations; Cycles
- E52 Monetary Policy
- F11 Neoclassical Models of Trade
- F31 Foreign Exchange
- F42 International Policy Coordination and Transmission