Monetary Cooperation during Global Inflation Surges

Luca Fornaro; Federica Romei

doi:10.1257/aer.20231018

Monetary Cooperation during Global Inflation Surges

¹ CREI, Universitat Pompeu Fabra, Barcelona School of Economics and CEPR (email: ) · ² University of Oxford and CEPR (email: )

American Economic Review 2026

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. (JEL E24, E31, E32, E52, F11, F31, F42)

DOI: 10.1257/aer.20231018
Volume: 116 (1)
Pages: 164-188
Language: en
Export: BibTeX
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