Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
Using a dynamic general equilibrium model, this paper investigates the effects of tariffs on the United States inflation and other macroeconomic variables, where alternative monetary policies are considered to mitigate the welfare costs of tariffs. The main innovation of the model is achieved by considering the effects of home versus foreign tariffs in an otherwise standard two-country open economy model with non-zero trend inflation that is estimated using Bayesian techniques with the United States quarterly data, including those on tariffs, inflation, policy rates, output, consumption and exchange rates covering the period between 1990 and 2024. Simulations based on the estimated parameters suggest that tariff pass-through into inflation is about 9% when only the home country imposes tariffs and about 10% when the foreign country retaliates against home tariffs. The counterfactual analyses further suggest that reducing the policy weight on inflation, increasing the policy weight on employment, or having an expansionary monetary policy shock could be used to mitigate the welfare costs of tariff increases.