On curbing the rise in energy prices: An examination of different mitigation approaches

Natascha Hinterlang, Marius Jäger, Nikolai Stähler and Johannes Strobel

No 09/2024, Discussion Papers from Deutsche Bundesbank

Abstract: The dependency on imported essential production inputs poses a threat of abrupt price hikes and shortages, potentially triggered by political events. The energy crisis resulting from the Russian war of aggression is an example. This paper investigates whether governments should bolster production via transfers or cost subsidies in the event of a crisis, utilizing a dynamic multi-sector economic model that is calibrated to Germany and incorporates endogenous firm entry and exit. Our findings suggest that subsidizing production costs is more beneficial for economic activity and welfare, provided the energy demand due to the subsidy does not significantly influence the price of the essential production input. If it does, this approach could become exceedingly expensive. In such scenarios, it is economically more efficient to provide lump-sum transfers to firms. The effectiveness of these policies ultimately hinges on their impact on the price of the imported input.

Keywords: Dynamic General Equilibrium Model; Input-Output Matrix; Energy crisis; Gas Price Brake (search for similar items in EconPapers)
JEL-codes: E32 E50 E62 H32 Q58 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-cis, nep-ene, nep-reg and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/287760/1/1884476686.pdf (application/pdf)

Related works:
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:zbw:bubdps:287760

Access Statistics for this paper

More papers in Discussion Papers from Deutsche Bundesbank Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().