Key message of the paper, as before: the composition of tariffs matters no less than their level!
Updated version here: papers.ssrn.com/sol3/papers.... 6/6

When are tariffs recessionary in the short run?
✳️ Tariffs on final goods: expansionary if Armington elasticity > 2.
✴️ Tariffs on inputs: recessionary if Armington elasticity < 1, i.e. imported inputs are complements in production.
Both conditions in line with the evidence.
5/6

Tariffs on intermediate goods:
🔴 (imported) inputs costlier 👉 upward shift of the NKPC
🔵 Reduced foreign and domestic demand for inputs (when complements) 👉 inward shift of the IS
➡️ At equilibrium, pressure on domestic producer prices, and reduced output and GDP
4/6

Tariffs on final goods:
🔵 Reallocation of final demand domestically 👉 outward shift of the IS
🔴 Currency appreciates 👉 cheaper imported inputs 👉 downward shift of the NKPC
➡️ At equilibrium, production and GDP may increase, w/ little pressure on domestic producer prices
3/6

We now provide additional analytical insights on the different impact of tariffs on final goods as opposed to intermediate goods, through the lens of the Dynamic IS (demand-side) vs NKPC (supply-side) shifts induced by the tariffs 👇 2/6

⚠️ Updated version of our paper on “Tariffs across the supply chain” with expanded intuition/explanation of the mechanisms in the (nested) simplified version of the full quantitative model 👇 1/6

Is this unemployment-inflation trade-off the only/main challenge central banks face during an energy shock? Absolutely not.

An overview from the 2025 ECB Strategy Assessment (Section 3.1) 👇7/7

How do central banks typically react? 6/7

Energy price shocks, unemployment, and monetary policy Does monetary policy face a trade-off between stabilizing inflation and unemployment as soaring energy prices hit the unemployed harder than the emplo…

Last but not least, the full paper:
🔗 www.sciencedirect.com/science/arti...

And some additional context 👇 5/7

Monetary authorities face a trade-off between higher inflation and lower unemployment.

Optimal policy accommodates a partial rise in inflation to curb unemployment. Maintaining employment shields workers from greater exposure to rising energy prices. 4/7

I capture this evidence in a tractable HANK model with labor market frictions, introducing energy as both a necessity consumption good and a complementary production input. 3/7

Evidence shows that job losses force workers to reduce expenditure and allocate a higher share of it to energy-intensive items (e.g., utilities).
If you become unemployed, you can't just stop heating your home! 2/7

How should central banks react if disruptions in energy markets persist and unemployment rises?

Some insight from my paper written in the context of the previous, recent surge in energy prices👇 1/7

⚠️ Personal views, not necessarily those of the ECB or the Eurosystem

Heartfelt thanks to @faculti.bsky.social for this nice opportunity to showcase the results from my paper!

www.sciencedirect.com/science/arti...

*Usual disclaimer: views/opinions are my own, not those of the @ecb.europa.eu or Banca d’Italia*

Also check out our recent column on @voxeu.org for a more policy-oriented take on the results 6/6

The results imply that a revenue-equivalent approach to import tariffs, targeting only final goods, can cushion the adverse effects of trade wars. 5/6

Tariffs on final goods have a smaller negative impact on GDP, as final goods can be more readily substituted with domestic alternatives. Persistent cost and inflation pressures are avoided, only at the cost of somewhat higher inflation on impact. 4/5

Tariffs on intermediate goods lead to larger GDP losses, given the limited substitutability of foreign inputs and their role in global supply chains. Cost pressures through production linkages give rise to persistent inflation. 3/5

What are the macroeconomic impacts of tariffs on final goods versus intermediate inputs? The paper investigates this question in a 2-region, multi-sector model with production networks, sticky prices and wages, and trade in consumption, investment, and intermediate goods. 2/5

Want to avoid ripple effects on inflation and GDP from tariffs (and retaliation)? Exempt intermediate inputs.

Check out our Working Paper (joint with C. Montes-Galdon and G. Stamato)! 🧵1/6

Glad and honored to have been part of the ECB’s 2025 monetary policy strategy assessment.
My (little) contribution is based on the results from my recently published JME paper.

📄 workstream report: www.ecb.europa.eu/pub/pdf/scpo...

📄 paper: www.sciencedirect.com/science/arti...

Say we tax streaming services, then consumers can watch less of those and more tv. Say we tax digital marketplace services, then firms might need to pay that higher cost, and ultimately pass it on to consumers. That’s the main point of our analysis. We talk about goods but it can extend to services

The mechanism we elicit can apply as well to services, not only goods. Typically, consumers can more easily adjust their consumption in response to trade barriers, compared to what firms can do with inputs. An example 👇

One of the authors here.
With all due respect, what do you exactly mean with “services”? Many of those for which the EU relies on the US (e.g. IT-related) actually serve themselves as a production input and have very few substitutes (if any)

We show how this approach limits the adverse effects on GDP and avoids persistent inflationary pressure, only at the cost of somewhat higher inflation on impact.

Stay tuned for the full paper! ⏱️ 2/2

Want to avoid ripple effects from tariffs (and retaliation)? Put them on final goods and exempt intermediate inputs.

Check out our column on @voxeu.org (based on a work-in-progress paper)!👇 1/2

The thing about Europe: it’s the actual land of the free now Europe’s very real problems don’t look so bad by comparison

The thing about Europe: it's the actual land of the free now.

Whatever problems Europe has - and it has plenty - it is looking pretty damn good by comparison these days.

My Charlemagne this week

www.economist.com/europe/2025/...

elder millennial here. just checking in for my annual “unprecedented times”

I feel you

To: The future German chancellor To: The future German chancellor From: Economists For Ukraine. Dear Chancellor, Congratulations on taking the helm of the Federal Republic of Germany! You are in a perfect storm, and Germany mus...

Hey #EconSky

Economists for Ukraine (econ4ua.org) drafted an open letter to the future German chancellor. We call for 🇩🇪 & 🇪🇺 to step up & to ⬆️ support for #Ukraine. Please read & sign (if you agree), the form is at the end of ✉️): tinyurl.com/m9ta2b5d

Please share this letter with your colleagues.