Series: Working Papers. 2550.
Author: Matthias Burgert, Matthieu Darracq Pariès, Luigi Durand, Mario González, Romanos Priftis, Oke Röhe, Matthias Rottner, Edgar Silgado-Gómez, Nikolai Stähler and Janos Varga
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Abstract
This paper presents a novel model comparison to examine the challenges for monetary policy posed by changes in carbon-intensive energy prices. The environmental monetary models employed have a detailed multi-sector structure. The comparison assesses the effects of both a temporary and a permanent energy price increase, with a particular focus on the euro area and the United States. The temporary and permanent price shocks are both inflationary. However, the inflationary impact of the permanent shock depends on the underlying model assumptions and monetary policy response. In addition, the analysis establishes that these models share significant commonalities in their quantitative and qualitative results, while also revealing cross-country differences.