Rates should stimulate economy in response to tariffs – study
Optimal monetary policy promotes employment and income, Minneapolis Fed paper argues
The optimal monetary policy response to tariffs is expansionary, research from the Federal Reserve Bank of Minneapolis has found.
The authors, Javier Bianchi and Louphou Coulibaly, say their working paper, published on March 7, challenges conventional wisdom. They argue that tariffs lead to a decline in imports and, to mitigate this, monetary policy should stimulate both employment and aggregate income.
The authors used an open-economy New Keynesian model to elicit their findings. They say their
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