Ivan Werning
@ivanwerning.bsky.social
MIT Robert M. Solow Professor of Economics | Macro, International, Public, Monetary, Taxes, Finance | v = u + β v | Beatles | Boston | Argentina | Patagonia
Workshop in International Macro
📣 Call for Papers 📣
Montevideo, Uruguay, Dec 10-11
Keynote: Ricardo Caballero
Submit your paper: digitatics.typeform.com/to/rUqHU5hOh...
📣 Call for Papers 📣
Montevideo, Uruguay, Dec 10-11
Keynote: Ricardo Caballero
Submit your paper: digitatics.typeform.com/to/rUqHU5hOh...
July 26, 2025 at 12:13 AM
Workshop in International Macro
📣 Call for Papers 📣
Montevideo, Uruguay, Dec 10-11
Keynote: Ricardo Caballero
Submit your paper: digitatics.typeform.com/to/rUqHU5hOh...
📣 Call for Papers 📣
Montevideo, Uruguay, Dec 10-11
Keynote: Ricardo Caballero
Submit your paper: digitatics.typeform.com/to/rUqHU5hOh...
Pictures speak louder than words... (Q is the global input price).
Equilibrium must be on red line: world Phillips curve...
...yet countries think they can deviate along the flatter blue line...
...but all that does is raise the price Q and shift their curve! 😳
Equilibrium must be on red line: world Phillips curve...
...yet countries think they can deviate along the flatter blue line...
...but all that does is raise the price Q and shift their curve! 😳
June 9, 2025 at 12:51 PM
Pictures speak louder than words... (Q is the global input price).
Equilibrium must be on red line: world Phillips curve...
...yet countries think they can deviate along the flatter blue line...
...but all that does is raise the price Q and shift their curve! 😳
Equilibrium must be on red line: world Phillips curve...
...yet countries think they can deviate along the flatter blue line...
...but all that does is raise the price Q and shift their curve! 😳
🚨New paper with Veronica Guerrieri and Guido Lorenzoni
Was the recent inflation surge due to a lack of coordination? Can lack of coordination lead to too much inflation?
Yes, we show. Especially in response to global supply shocks.
link to paper: economics.mit.edu/sites/defaul...
1/n🧵
Was the recent inflation surge due to a lack of coordination? Can lack of coordination lead to too much inflation?
Yes, we show. Especially in response to global supply shocks.
link to paper: economics.mit.edu/sites/defaul...
1/n🧵
June 9, 2025 at 12:48 PM
🚨New paper with Veronica Guerrieri and Guido Lorenzoni
Was the recent inflation surge due to a lack of coordination? Can lack of coordination lead to too much inflation?
Yes, we show. Especially in response to global supply shocks.
link to paper: economics.mit.edu/sites/defaul...
1/n🧵
Was the recent inflation surge due to a lack of coordination? Can lack of coordination lead to too much inflation?
Yes, we show. Especially in response to global supply shocks.
link to paper: economics.mit.edu/sites/defaul...
1/n🧵
The effects show up in the nominal exchange rate too...
In our setup, tariffs raise prices and depreciate the currency.
This echoes recent empirical patterns during trade tensions.
(capital flight is surely another reason, but basic macro+trade can already explain it)
In our setup, tariffs raise prices and depreciate the currency.
This echoes recent empirical patterns during trade tensions.
(capital flight is surely another reason, but basic macro+trade can already explain it)
May 12, 2025 at 11:05 AM
The effects show up in the nominal exchange rate too...
In our setup, tariffs raise prices and depreciate the currency.
This echoes recent empirical patterns during trade tensions.
(capital flight is surely another reason, but basic macro+trade can already explain it)
In our setup, tariffs raise prices and depreciate the currency.
This echoes recent empirical patterns during trade tensions.
(capital flight is surely another reason, but basic macro+trade can already explain it)
The results hold with sticky wages, but then inflation control is even costlier.
Zero inflation now requires deeper recessions and wage deflation.
The optimal policy is still to accommodate—with some inflation.
Zero inflation now requires deeper recessions and wage deflation.
The optimal policy is still to accommodate—with some inflation.
May 12, 2025 at 11:05 AM
The results hold with sticky wages, but then inflation control is even costlier.
Zero inflation now requires deeper recessions and wage deflation.
The optimal policy is still to accommodate—with some inflation.
Zero inflation now requires deeper recessions and wage deflation.
The optimal policy is still to accommodate—with some inflation.
Basically, you can do open economy macro with your closed economy model.
Here are some numerical examples run thro the model...
Here are some numerical examples run thro the model...
May 12, 2025 at 11:02 AM
Basically, you can do open economy macro with your closed economy model.
Here are some numerical examples run thro the model...
Here are some numerical examples run thro the model...
Technically, our AS IF result is as follows.
-an extra "cost push" epsilon term in the Phillips curve, so it is pushes the curve out.
- the welfare objective is unchanged: dual mandate penalizing inflation and output deviations.
7/N
-an extra "cost push" epsilon term in the Phillips curve, so it is pushes the curve out.
- the welfare objective is unchanged: dual mandate penalizing inflation and output deviations.
7/N
May 12, 2025 at 11:02 AM
Technically, our AS IF result is as follows.
-an extra "cost push" epsilon term in the Phillips curve, so it is pushes the curve out.
- the welfare objective is unchanged: dual mandate penalizing inflation and output deviations.
7/N
-an extra "cost push" epsilon term in the Phillips curve, so it is pushes the curve out.
- the welfare objective is unchanged: dual mandate penalizing inflation and output deviations.
7/N
It looks something like this using a basic microeconomic intuition. The economy frontier goes down, but also wages are not equal to actual productivity, they are lower, so labor is distorted down. The second effect is stronger starting from free trade.
May 12, 2025 at 11:02 AM
It looks something like this using a basic microeconomic intuition. The economy frontier goes down, but also wages are not equal to actual productivity, they are lower, so labor is distorted down. The second effect is stronger starting from free trade.
What should the Fed do with Trump Tariffs?
New paper on 'Monetary Policy in Times of Tariffs' with Guido Lorenzoni & Veronica Guerrieri (link at end)
We show simplest most intuitive way to approach tariffs is actually correct:
Tariffs = textbook cost-push shock
www.nber.org/papers/w33772
🧵1/N
New paper on 'Monetary Policy in Times of Tariffs' with Guido Lorenzoni & Veronica Guerrieri (link at end)
We show simplest most intuitive way to approach tariffs is actually correct:
Tariffs = textbook cost-push shock
www.nber.org/papers/w33772
🧵1/N
May 12, 2025 at 10:58 AM
What should the Fed do with Trump Tariffs?
New paper on 'Monetary Policy in Times of Tariffs' with Guido Lorenzoni & Veronica Guerrieri (link at end)
We show simplest most intuitive way to approach tariffs is actually correct:
Tariffs = textbook cost-push shock
www.nber.org/papers/w33772
🧵1/N
New paper on 'Monetary Policy in Times of Tariffs' with Guido Lorenzoni & Veronica Guerrieri (link at end)
We show simplest most intuitive way to approach tariffs is actually correct:
Tariffs = textbook cost-push shock
www.nber.org/papers/w33772
🧵1/N
This hints at a more general result, when the Engel curve slope is higher today (more M at margin) than tomorrow, a permanent tariff reduces the trade deficit.
This happens most naturally if the Engel curve is convex.
Intuition?...
9/n
This happens most naturally if the Engel curve is convex.
Intuition?...
9/n
April 14, 2025 at 5:29 PM
This hints at a more general result, when the Engel curve slope is higher today (more M at margin) than tomorrow, a permanent tariff reduces the trade deficit.
This happens most naturally if the Engel curve is convex.
Intuition?...
9/n
This happens most naturally if the Engel curve is convex.
Intuition?...
9/n
The conditions are rather stringent though, we show that if tariffs are large enough, trade collapses and so does the trade deficit, hence (with NFA=0; otherwise you may get surplus!).
8/nhttps://pbs.twimg.com/media/GofurgVW8AEGqMx?format=png&name=medium
8/nhttps://pbs.twimg.com/media/GofurgVW8AEGqMx?format=png&name=medium
April 14, 2025 at 5:29 PM
The conditions are rather stringent though, we show that if tariffs are large enough, trade collapses and so does the trade deficit, hence (with NFA=0; otherwise you may get surplus!).
8/nhttps://pbs.twimg.com/media/GofurgVW8AEGqMx?format=png&name=medium
8/nhttps://pbs.twimg.com/media/GofurgVW8AEGqMx?format=png&name=medium
... using a utility U(M,X) over aggregates for imports and exports.
In other words, it is AS IF it were a simple two good economy, with imports and exports.
Our results use this induced preference relation and especially its Engel curves.
6/n
In other words, it is AS IF it were a simple two good economy, with imports and exports.
Our results use this induced preference relation and especially its Engel curves.
6/n
April 14, 2025 at 5:29 PM
... using a utility U(M,X) over aggregates for imports and exports.
In other words, it is AS IF it were a simple two good economy, with imports and exports.
Our results use this induced preference relation and especially its Engel curves.
6/n
In other words, it is AS IF it were a simple two good economy, with imports and exports.
Our results use this induced preference relation and especially its Engel curves.
6/n
How Tariffs Affect Trade Deficits...
... a new paper with amazing trade economist Arnaud Costinot.
Many politicians and the general public expect tariffs to reduce imports lower imports and thus work to close a trade deficit.
Economists typically say "not so fast"...
🧵1/n
... a new paper with amazing trade economist Arnaud Costinot.
Many politicians and the general public expect tariffs to reduce imports lower imports and thus work to close a trade deficit.
Economists typically say "not so fast"...
🧵1/n
April 14, 2025 at 5:25 PM
How Tariffs Affect Trade Deficits...
... a new paper with amazing trade economist Arnaud Costinot.
Many politicians and the general public expect tariffs to reduce imports lower imports and thus work to close a trade deficit.
Economists typically say "not so fast"...
🧵1/n
... a new paper with amazing trade economist Arnaud Costinot.
Many politicians and the general public expect tariffs to reduce imports lower imports and thus work to close a trade deficit.
Economists typically say "not so fast"...
🧵1/n
Analyzing theoretical formula used to determine tariffs…
What’s wrong with it?
Used in isolation on a single small trading partner the formula makes some sense. But if applied widely to many non trivial ones it does not.
ustr.gov/issue-areas/...
What’s wrong with it?
Used in isolation on a single small trading partner the formula makes some sense. But if applied widely to many non trivial ones it does not.
ustr.gov/issue-areas/...
April 3, 2025 at 11:26 AM
Analyzing theoretical formula used to determine tariffs…
What’s wrong with it?
Used in isolation on a single small trading partner the formula makes some sense. But if applied widely to many non trivial ones it does not.
ustr.gov/issue-areas/...
What’s wrong with it?
Used in isolation on a single small trading partner the formula makes some sense. But if applied widely to many non trivial ones it does not.
ustr.gov/issue-areas/...
Economics is hard. Even the basics. Exhibit #52783
January 14, 2025 at 11:10 PM
Economics is hard. Even the basics. Exhibit #52783
Trump at it again talking about the virtues of tariffs.
Two key papers: Diamond-Mirrlees Atkinson-Stiglitz, establish conditions under which tariffs should not be employed and show the income tax is a great tax.
Or read @pkrugman.bsky.social Pop internationalism!
Two key papers: Diamond-Mirrlees Atkinson-Stiglitz, establish conditions under which tariffs should not be employed and show the income tax is a great tax.
Or read @pkrugman.bsky.social Pop internationalism!
January 2, 2025 at 3:03 PM
Trump at it again talking about the virtues of tariffs.
Two key papers: Diamond-Mirrlees Atkinson-Stiglitz, establish conditions under which tariffs should not be employed and show the income tax is a great tax.
Or read @pkrugman.bsky.social Pop internationalism!
Two key papers: Diamond-Mirrlees Atkinson-Stiglitz, establish conditions under which tariffs should not be employed and show the income tax is a great tax.
Or read @pkrugman.bsky.social Pop internationalism!
Argentina, one year into its libertarian presidency Milei is starting to post some good numbers.
Fiscal cut of ~5% of GDP.
Inflation continues to fall.
Structural reforms and deregulations
Recession ending.
Latest: poverty falls after spike earlier this year.
Fiscal cut of ~5% of GDP.
Inflation continues to fall.
Structural reforms and deregulations
Recession ending.
Latest: poverty falls after spike earlier this year.
December 19, 2024 at 11:20 PM
Argentina, one year into its libertarian presidency Milei is starting to post some good numbers.
Fiscal cut of ~5% of GDP.
Inflation continues to fall.
Structural reforms and deregulations
Recession ending.
Latest: poverty falls after spike earlier this year.
Fiscal cut of ~5% of GDP.
Inflation continues to fall.
Structural reforms and deregulations
Recession ending.
Latest: poverty falls after spike earlier this year.
New Keynesian economics for you.
December 16, 2024 at 11:35 AM
New Keynesian economics for you.
Tom Sargent honoris causa at di Tella University in Buenos Aires.
December 12, 2024 at 12:28 PM
Tom Sargent honoris causa at di Tella University in Buenos Aires.
Fake Barbara… check the handle
November 26, 2024 at 10:13 PM
Fake Barbara… check the handle
I wrote this to think through a more general case (fun!). Seems to justify clustering (we treat each treated group as a single observation with its average).
November 23, 2024 at 4:52 PM
I wrote this to think through a more general case (fun!). Seems to justify clustering (we treat each treated group as a single observation with its average).
A great party at MIT to not forget…
Celebrating Daron Acemoglu and his Nobel award!
Happy new in the room was brimming.
Celebrating Daron Acemoglu and his Nobel award!
Happy new in the room was brimming.
November 21, 2024 at 11:48 PM
A great party at MIT to not forget…
Celebrating Daron Acemoglu and his Nobel award!
Happy new in the room was brimming.
Celebrating Daron Acemoglu and his Nobel award!
Happy new in the room was brimming.
On Fiscal Dominance, a classic is Sargent-Wallace "Unpleasant Monetarist Arithmetic" in the QR. 💵
In this QR note I celebrate and revisit it. I show their spectacular example relies on being on the wrong side of a Laffer curve. I offer a variant that strengthens their conclusions.
t.co/gGRDafQ01V
In this QR note I celebrate and revisit it. I show their spectacular example relies on being on the wrong side of a Laffer curve. I offer a variant that strengthens their conclusions.
t.co/gGRDafQ01V
November 15, 2024 at 10:11 PM
On Fiscal Dominance, a classic is Sargent-Wallace "Unpleasant Monetarist Arithmetic" in the QR. 💵
In this QR note I celebrate and revisit it. I show their spectacular example relies on being on the wrong side of a Laffer curve. I offer a variant that strengthens their conclusions.
t.co/gGRDafQ01V
In this QR note I celebrate and revisit it. I show their spectacular example relies on being on the wrong side of a Laffer curve. I offer a variant that strengthens their conclusions.
t.co/gGRDafQ01V
Everything is Awesome!
October 31, 2024 at 12:56 PM
Everything is Awesome!