Description:

Veronica Guerrieri (Chicago Booth): “Global Price Shocks and International Monetary Coordination” (with Guido Lorenzoni and Ivan Werning)
 
Abstract: When the central bank of an individual country is trying to contain domestic inflation it mostly takes as given global supply conditions—which determine oil prices, shipping costs, the prices of tradable intermediate goods, bottlenecks in global supply chains, and so on. However, the combined actions of all the world central banks matter for global demand, which matters for how global supply conditions translate into price and non-price pressures on global inflation. This suggests the possibility that, following a negative world supply shock, uncoordinated monetary policy may deliver excessively loose policy from a global perspective: an expansionary bias. We investigate this possibility in some simple models of a world economy with an integrated global commodity market and derive sufficient conditions for an expansionary bias to emerge.