Template-Type: ReDIF-Paper 1.0
Author-Name: Silvana Tenreyro
Author-X-Name-First: Silvana
Author-X-Name-Last: Tenreyro 
Author-Name: Ludovica Ambrosino
Author-X-Name-First: Ludovica
Author-X-Name-Last: Ambrosino
Author-Name: Jenny Chan
Author-X-Name-First: Jenny
Author-X-Name-Last: Chan 
Title: Trade fragmentation, inflationary pressures and monetary policy
Abstract: How does trade fragmentation affect inflationary pressures? What is the response of monetary policy needed to sustain inflation at target? To answer these questions, we develop a heterogeneous agent, open-economy model featuring imperfect international risk-sharing. The model captures both the demand and supply side effects of fragmentation. It illustrates how the impact of fragmentation on inflationary pressures and the appropriate policy response depends not only on the direct effect of higher import prices on supply but, crucially, on how aggregate demand adjusts in response to lower real incomes and productivity stemming from fragmentation.
Creation-Date: 2024-10
File-URL: https://www.bis.org/publ/work1225.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1225.htm
File-Format: text/html
Number: 1225
Keywords: monetary policy, trade fragmentation, open economies, inflation, heterogeneity, globalisation
Classification-JEL: F12, F15, F41, F62
Handle: RePEc:bis:biswps:1225