Limited Energy Supply, Sunspots, and Monetary Policy

Nils Gornemann, Sebastian Hildebrand () and Keith Kuester ()
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Sebastian Hildebrand: University of Bonn
Keith Kuester: University of Bonn

No 215, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: 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.

Keywords: Energy crisis; macroeconomic instability; sunspots; monetary policy; heterogeneous households (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 F41 Q43 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2022-12
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-ene and nep-mon
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Citations: View citations in EconPapers (2)

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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_215_2022.pdf First version, 2022 (application/pdf)

Related works:
Working Paper: Limited Energy Supply, Sunspots, and Monetary Policy (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:215

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