The Energy-Price Channel of (European) Monetary Policy

Gökhan Ider, Alexander Kriwoluzky, Frederik Kurcz and Ben Schumann

No 2033, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This study examines whether central banks can combat inflation that is caused by rising energy prices. By using a high-frequency event study and a Structural Vector Autoregression, we find evidence that the European Central Bank (ECB) and the Federal Reserve (Fed) are capable of doing so by affecting domestic and global energy prices. This “energy-price channel” of monetary policy plays an important role in the transmission mechanism of monetary policy. As many major sources of energy, such as oil, are priced in dollars, fluctuations in the domestic exchange rate vis-a-vis the dollar crucially shapes the transmission of monetary policy to energy prices. On the one hand an appreciation of the euro against the dollar lowers local energy prices (in euro) through cheaper imports. On the other hand lower import prices raise energy demand and thereby increase global energy prices (in dollars). Our counterfactual analysis demonstrates that both effects are present, but the latter effect is stronger than the former.

Keywords: Inflation; energy prices; monetary policy transmission mechanism (search for similar items in EconPapers)
JEL-codes: C22 E31 E52 Q43 (search for similar items in EconPapers)
Pages: 43 p.
Date: 2023
New Economics Papers: this item is included in nep-cba, nep-des, nep-eec, nep-ene, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_01.c.868031.de/dp2033.pdf (application/pdf)

Related works:
Working Paper: The Energy-Price Channel of (European) Monetary Policy (2023)
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:diw:diwwpp:dp2033

Access Statistics for this paper

More papers in Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().