Banque de France – Toulouse School of Economics Prize for Distinguished Scholars Seminar with Veronica Guerrieri

Abstract

When a central bank seeks to stabilize domestic inflation, it typically takes global supply conditions as given. Yet global economic conditions — including commodity prices, shipping costs, prices of tradable intermediate goods, and disruptions in global supply chains — are also influenced by the combined actions of monetary authorities around the world.

This paper studies how the lack of international monetary policy coordination can affect the global response to adverse supply shocks. The authors show that, in a world economy with integrated commodity markets, individually optimal monetary policies may generate an expansionary bias from a global perspective, leading to stronger global demand pressures and potentially amplifying inflationary effects.

The paper derives conditions under which this coordination problem emerges and highlights the role of international monetary interactions in shaping the global inflation outlook.