Energy prices and household heterogeneity: Monetary policy in a Gas-TANK

Jenny Chan, Sebastian Diz and Derrick Kanngiesser

Journal of Monetary Economics, 2024, vol. 147, issue S

Abstract: How does household heterogeneity affect the transmission of an energy price shock? What are the implications for monetary policy? We develop a small, open-economy TANK model that features labor and an energy import good as complementary production inputs (Gas-TANK). Given such complementarities, higher energy prices reduce the labor share of total income. Due to borrowing constraints, this translates into a drop in aggregate demand. Higher price flexibility insures firm profits from energy price shocks, further depressing labor income and demand. We illustrate how the transmission of shocks in a RANK versus a TANK depends on the degree of complementarity between energy and labor in production and the extent of price rigidities. Optimal monetary policy is less contractionary in a TANK and can even be expansionary when credit constraints are severe. Finally, we show that the contractionary effect of energy price shocks on demand cannot be generalized to alternate supply shocks.

Keywords: Energy prices; Inflation; Household heterogeneity; Monetary policy (search for similar items in EconPapers)
JEL-codes: E21 E23 E31 E52 F41 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393224000734
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Energy prices and household heterogeneity: monetary policy in a Gas-TANK (2023)
Working Paper: Energy Prices and Household Heterogeneity: Monetary Policy in a Gas-TANK (2022)
Working Paper: Energy Prices and Household Heterogeneity: Monetary Policy in a Gas-TANK (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:147:y:2024:i:s:s0304393224000734

DOI: 10.1016/j.jmoneco.2024.103620

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().