Welcome to the first edition of the Inflation Research Digest, a quarterly newsletter published by the Cleveland Fed’s Center for Inflation Research. It highlights research papers from the Federal Reserve System and other institutions, announces calls for papers for workshops and conferences, and provides links to inflation-related data.
You are receiving this newsletter because you are subscribed to updates from the Center. If you do not want to receive future editions of the new Inflation Research Digest, but you would like to continue receiving the Center’s quarterly newsletter, please send us an email.
The authors find that a permanent tariff increase leads to a temporary rise in inflation and a short period of monetary policy tightening. However, transitory tariff increases are neither inflationary nor contractionary, and are not associated with monetary policy tightening. They find that, on average, tariff shocks are a minor driver of business cycle fluctuations in the US.
The authors decompose the general equilibrium response to trade shocks into distinct channels that account for demand shifts, policy effects, exchange rate adjustments, expectations, price stickiness, and input–output linkages. Tariffs act simultaneously as demand and supply shocks, and the net impact of tariffs on domestic inflation, output, employment, and the US dollar depends on the endogenous monetary policy response in both the tariff-imposing and tariff-exposed countries.
