Monetary and fiscal policy responses to fossil fuel price shocks

Anna Bartocci, Alessandro Cantelmo, Pietro Cova, Alessandro Notarpietro and Massimiliano Pisani

Energy Economics, 2024, vol. 136, issue C

Abstract: We use a dynamic equilibrium model featuring different sources of energy to assess the macroeconomic effects in the euro area of a temporary reduction in excise taxes on fossil fuels and increase in lump-sum transfers to the poorest (“hand-to-mouth”) households, and raising the monetary policy rate in response to a temporary increase in the international price of fossil fuels. The central bank must raise the monetary policy rate to stabilize inflation even if excise taxes are lowered, in particular if price- and wage-setting decisions are not strongly anchored to the central bank inflation target. Lump-sum transfers to hand-to-mouth households can stabilize their consumption with limited inflationary effects.

Keywords: Monetary policy; Fiscal policy; Dynamic general equilibrium model; Euro area; Fossil fuel price shocks (search for similar items in EconPapers)
JEL-codes: D58 E52 E58 E62 E63 Q43 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Monetary and fiscal policy responses to fossil fuel price shocks (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:136:y:2024:i:c:s0140988324004456

DOI: 10.1016/j.eneco.2024.107737

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