CEPII, Recherche et Expertise sur l'economie mondiale
Thursday September 28, 2023
2.00-3.15 pm - CEPII, 20, avenue de Ségur 75007 Paris
"Optimal Monetary Policy, Tariff Shocks and Exporter Dynamics". CEPII research seminar with Masashige Hamano (Waseda University, Tokyo)

Masashige Hamano
Professor at School of Political Science, Waseda University, Tokyo
Masashige Hamano will present "Optimal Monetary Policy, Tariff Shocks and Exporter Dynamics" co-authored with Francesco Pappada and Maria Teresa Punzi.
In this paper, the authors explore the response of optimal monetary policy to uncoordinated trade policies (foreign tariff shocks). They first provide a simple model of open economy with heterogeneous firms and derive a closed-form solution for the optimal monetary policy response to tariff shocks in presence of nominal rigidities. They show that optimal monetary policy is expansionary following foreign tariff hikes. Under nominal rigidities, uncertainty about foreign tariff hikes induces sluggish adjustments in the labor market reallocation between exporters and domestic firms, leading to an incentive for monetary authority to intervene and mitigate the impact of tariff shocks. In an extended model, they then show the quantitative response of our economy to a tariff shock under the Ramsey monetary policy, a Taylor Rule and a fixed exchange rate regime. Finally, the authors provide empirical evidence for the response of domestic monetary policy to foreign tariff shocks using data on Global Antidumping from the US.

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