Friend, Not Foe? Monetary Policy and Energy Prices

Gökhan Ider, Alexander Kriwoluzky, Frederik Kurcz and Ben Schumann

No 102, Berlin School of Economics Discussion Papers from Berlin School of Economics

Abstract: We empirically show that a central bank’s ability to affect global energy prices crucially alters monetary policy transmission. We first provide novel evidence that euro area monetary policy significantly affects energy prices. Employing a Lucas critique-robust counterfactual framework, we find that this ability strengthens and accelerates transmission to inflation and substantially alleviates the inflation-output trade-off. We further show that this ability materially shapes the mandate-optimal policy response to an energy supply shock: the optimal response implies a smaller interest rate increase and a more favorable inflation-output allocation than in a scenario where energy prices are unaffected by monetary policy.

Keywords: inflation; energy prices; monetary policy; monetary transmission mechanism (search for similar items in EconPapers)
JEL-codes: C32 E31 E52 Q43 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2026-07-10
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Persistent link: https://EconPapers.repec.org/RePEc:bdp:dpaper:0102

DOI: 10.48462/opus4-6295

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