Monetary Policy with Supply Regimes

Series

Macro Seminars
Speaker

Galo Nuño (Bank of Spain)
Field

Macroeconomics

Location

Tinbergen Institute, Campus Roeterseiland, room tba
Amsterdam
Date and time

February 12, 2026
16:00 - 17:15

Abstract

This paper analyzes optimal monetary policy in a New Keynesian model with supply regimes—periods of persistently higher costs due to tariffs, wars, or geopolitical fragmentation. We compute the optimal policy globally using deep learning. Under commitment, the central bank tolerates temporary inflation without reversing past price increases. Under discretion, high-cost regimes generate an inflationary bias, as they create incentives for monetary stimulus that raise inflation expectations. Standard Taylor rules fail to stabilize long-run inflation because regime shifts alter the natural rate. We further extend the analysis to state-dependent pricing. Joint paper with Philipp Renner and Simon Scheidegger.

JEL Classification: E32, E58, E63.
Keywords: Deep learning, Markov-switching Model, Cost-push shocks.