Monetary Cooperation during Global Inflation Surges
American Economic Review · 2026 · Volume 116 · Issue 1
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.
Keywords
Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital, Aggregate Labor Productivity, Price Level, Inflation, Deflation, Business Fluctuations, Cycles, Monetary Policy, Neoclassical Models of Trade, Foreign Exchange, International Policy Coordination and Transmission
Enable JavaScript for citation tools and additional paper interactions.