Managing an Energy Shock: Fiscal and Monetary Policy

Adrien Auclert, Hugo Monnery, Matthew Rognlie and Ludwig Straub

No 31543, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the macroeconomic effects of energy price shocks in energy-importing economies using a heterogeneous-agent New Keynesian model. When MPCs are realistically large and the elasticity of substitution between energy and domestic goods is realistically low, increases in energy prices depress real incomes and cause a recession, even if the central bank does not tighten monetary policy. Imported energy inflation can spill over to wage inflation through a wage-price spiral, but this does not mitigate the decline in real wages. Monetary tightening has limited effect on imported inflation when done in isolation, but can be powerful when done in coordination with other energy importers by lowering world energy demand. Fiscal policy, especially energy price subsidies, can isolate individual energy importers from the shock, but it has large negative externalities on other economies.

JEL-codes: E52 F42 Q43 (search for similar items in EconPapers)
Date: 2023-08
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-ene, nep-mac and nep-mon
Note: EEE EFG IFM ME
References: Add references at CitEc
Citations: View citations in EconPapers (30)

Downloads: (external link)
http://www.nber.org/papers/w31543.pdf (application/pdf)

Related works:
Working Paper: Managing an Energy Shock: Fiscal and 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:nbr:nberwo:31543

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w31543

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().