Limited energy supply, sunspots, and monetary policy

Arbeitspapier

A common assumption in macroeconomics is that energy prices are determined in a world-wide, rather frictionless market. This no longer seems an adequate description for the situation that much of Europe currently faces. Rather, one reading is that shortages exist in the quantity of energy available. Such limits to the supply of energy mean that the local price of energy is affected by domestic economic activity. In a simple open-economy New Keynesian setting, the paper shows conditions under which energy shortages can raise the risk of self-fulfilling fluctuations. A firmer focus of the central bank on input prices (or on headline consumer prices) removes such risks.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECONtribute Discussion Paper ; No. 215

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Business Fluctuations; Cycles ; Monetary Policy ; Open Economy Macroeconomics ; Energy and the Macroeconomy
• Subject: Energy crisis ; macroeconomic instability ; sunspots ; monetary policy ; heterogeneous households

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gornemann, Nils ; Hildebrand, Sebastian ; Küster, Keith
• Event: Veröffentlichung
• (who): University of Bonn and University of Cologne, Reinhard Selten Institute (RSI)
• (where): Bonn and Cologne
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/278310
• Last update: 10.03.2025, 11:44 AM CET