[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/p/ajk/ajkdps/215.html
   My bibliography  Save this paper

Limited Energy Supply, Sunspots, and Monetary Policy

Author

Listed:
  • Nils Gornemann

    (Board of Governors of the Federal Reserve System)

  • Sebastian Hildebrand

    (University of Bonn)

  • Keith Kuester

    (University of Bonn)

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.

Suggested Citation

  • Nils Gornemann & Sebastian Hildebrand & Keith Kuester, 2022. "Limited Energy Supply, Sunspots, and Monetary Policy," ECONtribute Discussion Papers Series 215, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:215
    as

    Download full text from publisher

    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_215_2022.pdf
    File Function: First version, 2022
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Michael Carlos Best & James S Cloyne & Ethan Ilzetzki & Henrik J Kleven, 2020. "Estimating the Elasticity of Intertemporal Substitution Using Mortgage Notches," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(2), pages 656-690.
    2. Carlstrom, Charles T. & Fuerst, Timothy S. & Ghironi, Fabio, 2006. "Does it matter (for equilibrium determinacy) what price index the central bank targets?," Journal of Economic Theory, Elsevier, vol. 128(1), pages 214-231, May.
    3. Olivier J. Blanchard & Marianna Riggi, 2013. "WHY ARE THE 2000s SO DIFFERENT FROM THE 1970s? A STRUCTURAL INTERPRETATION OF CHANGES IN THE MACROECONOMIC EFFECTS OF OIL PRICES," Journal of the European Economic Association, European Economic Association, vol. 11(5), pages 1032-1052, October.
    4. Guido Ascari & Tiziano Ropele, 2009. "Trend Inflation, Taylor Principle, and Indeterminacy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(8), pages 1557-1584, December.
    5. Chacko George & Florian Kuhn, 2019. "Business Cycle Implications of Capacity Constraints under Demand Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 94-121, April.
    6. Ilabaca, Francisco & Milani, Fabio, 2021. "Heterogeneous expectations, indeterminacy, and postwar US business cycles," Journal of Macroeconomics, Elsevier, vol. 68(C).
    7. Raj Chetty & Adam Guren & Day Manoli & Andrea Weber, 2011. "Are Micro and Macro Labor Supply Elasticities Consistent? A Review of Evidence on the Intensive and Extensive Margins," American Economic Review, American Economic Association, vol. 101(3), pages 471-475, May.
    8. Rüdiger Bachmann & David Baqaee & Christian Bayer & Moritz Kuhn & Andreas Löschel & Benjamin Moll & Andreas Peichl & Karen Pittel & Moritz Schularick, 2022. "What if? The economic effects for Germany of a stop of energy imports from Russia," Working Papers hal-03881469, HAL.
    9. Christoph E. Boehm & Nitya Pandalai-Nayar, 2022. "Convex Supply Curves," American Economic Review, American Economic Association, vol. 112(12), pages 3941-3969, December.
    10. Francesco Bianchi & Giovanni Nicolò, 2021. "A generalized approach to indeterminacy in linear rational expectations models," Quantitative Economics, Econometric Society, vol. 12(3), pages 843-868, July.
    11. Bodenstein, Martin & Erceg, Christopher J. & Guerrieri, Luca, 2008. "Optimal monetary policy with distinct core and headline inflation rates," Journal of Monetary Economics, Elsevier, vol. 55(Supplemen), pages 18-33, October.
    12. John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters, in: Monetary Policy Rules, pages 1-14, National Bureau of Economic Research, Inc.
    13. Llosa, Luis-Gonzalo & Tuesta, Vicente, 2009. "Learning about monetary policy rules when the cost-channel matters," Journal of Economic Dynamics and Control, Elsevier, vol. 33(11), pages 1880-1896, November.
    14. Drechsel, Thomas & Tenreyro, Silvana, 2018. "Commodity booms and busts in emerging economies," Journal of International Economics, Elsevier, vol. 112(C), pages 200-218.
    15. Bilbiie, Florin O., 2008. "Limited asset markets participation, monetary policy and (inverted) aggregate demand logic," Journal of Economic Theory, Elsevier, vol. 140(1), pages 162-196, May.
    16. Slacalek, Jiri & Tristani, Oreste & Violante, Giovanni L., 2020. "Household balance sheet channels of monetary policy: A back of the envelope calculation for the euro area," Journal of Economic Dynamics and Control, Elsevier, vol. 115(C).
    17. Kurozumi, Takushi, 2006. "Determinacy and expectational stability of equilibrium in a monetary sticky-price model with Taylor rule," Journal of Monetary Economics, Elsevier, vol. 53(4), pages 827-846, May.
    18. Christiane Baumeister & James D. Hamilton, 2019. "Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks," American Economic Review, American Economic Association, vol. 109(5), pages 1873-1910, May.
    19. Stefano Eusepi & Bart Hobijn & Andrea Tambalotti, 2011. "CONDI: A Cost-of-Nominal-Distortions Index," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(3), pages 53-91, July.
    20. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1.
    21. Jean-François Fagnart & Omar Licandro & Franck Portier, 1999. "Firm Heterogeneity, Capacity Utilization and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(2), pages 433-455, April.
    22. Branch, William A. & McGough, Bruce, 2009. "A New Keynesian model with heterogeneous expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 33(5), pages 1036-1051, May.
    23. Auclert, Adrien & Monnery, Hugo & Rognlie, Matthew & Straub, Ludwig, 2023. "Managing an Energy Shock: Fiscal and Monetary Policy," CEPR Discussion Papers 18340, C.E.P.R. Discussion Papers.
    24. Aoki, Kosuke, 2001. "Optimal monetary policy responses to relative-price changes," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 55-80, August.
    25. Pieroni, Valerio, 2023. "Energy shortages and aggregate demand: Output loss and unequal burden from HANK," European Economic Review, Elsevier, vol. 154(C).
    26. Emmanuel Dhyne & Luis J. Alvarez & Herve Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lunnemann & Fabio Rumler & Jouko Vilmunen, 2006. "Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 171-192, Spring.
    27. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    28. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
    29. Marco Airaudo & Luis-Felipe Zanna, 2012. "Equilibrium Determinacy and Inflation Measures for Interest Rate Rules," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(4), pages 573-592, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gökhan Ider & Alexander Kriwoluzky & Frederik Kurcz & Ben Schumann, 2023. "The Energy-Price Channel of (European) Monetary Policy," Discussion Papers of DIW Berlin 2033, DIW Berlin, German Institute for Economic Research.
    2. Ciccarelli, Matteo & Marotta, Fulvia, 2024. "Demand or Supply? An empirical exploration of the effects of climate change on the macroeconomy," Energy Economics, Elsevier, vol. 129(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gornemann, Nils & Hildebrand, Sebastian & Kuester, Keith, 2024. "Limited (energy) supply, monetary policy, and sunspots," European Economic Review, Elsevier, vol. 168(C).
    2. William A. Barnett & Unal Eryilmaz, 2023. "Monetary Policy and Determinacy: An Inquiry into Open Economy New Keynesian Macrodynamics," Open Economies Review, Springer, vol. 34(2), pages 217-253, April.
    3. Luis-Gonzalo Llosa & Vicente Tuesta, 2008. "Determinacy and Learnability of Monetary Policy Rules in Small Open Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 1033-1063, August.
    4. Haque, Qazi & Groshenny, Nicolas & Weder, Mark, 2021. "Do we really know that U.S. monetary policy was destabilizing in the 1970s?," European Economic Review, Elsevier, vol. 131(C).
    5. William A. Barnett & Unal Eryilmaz, 2022. "Monetary Policy and Determinacy: An Inquiry in Open Economy New Keynesian Framework," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202203, University of Kansas, Department of Economics.
    6. Marco Airaudo & Luis-Felipe Zanna, 2012. "Equilibrium Determinacy and Inflation Measures for Interest Rate Rules," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(4), pages 573-592, October.
    7. Stefano Siviero & Giovanni Veronese, 2011. "A policy-sensible benchmark core inflation measure," Oxford Economic Papers, Oxford University Press, vol. 63(4), pages 648-672, December.
    8. Daniela Bragoli & Massimiliano Rigon & Francesco Zanetti, 2016. "Optimal Inflation Weights in the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 12(2), pages 357-383, June.
    9. Ales Marsal & Katrin Rabitsch & Lorant Kaszab, 2023. "Undesired Consequences of Calvo Pricing in a Non-linear World," Working and Discussion Papers WP 1/2023, Research Department, National Bank of Slovakia.
    10. Sevim Kosem Alp, 2010. "Optimal Monetary Policy under Sectoral Heterogeneity in Inflation Persistence (Sektorel Enflasyon Ataleti Farkliligi Altinda Optimal Para Politikasi)," Working Papers 1004, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    11. Sergio Ocampo Diaz, 2013. "Rule-of-Thumb Consumers, Nominal Rigidities and the Design of Interest Rate Rules," Research Department Publications IDB-WP-400, Inter-American Development Bank, Research Department.
    12. Luis-Felipe Zanna & Marco Airaudo, 2005. "Learning about which measure of inflation to target," Computing in Economics and Finance 2005 176, Society for Computational Economics.
    13. Romina Bafile & Alessandro Piergallini, 2017. "Firms’ money demand and monetary policy," Pacific Economic Review, Wiley Blackwell, vol. 22(3), pages 350-382, August.
    14. Gasteiger, Emanuel, 2018. "Do Heterogeneous Expectations Constitute A Challenge For Policy Interaction?," Macroeconomic Dynamics, Cambridge University Press, vol. 22(8), pages 2107-2140, December.
    15. Sorge, Marco M., 2021. "Stabilizing Taylor rules and determinacy under unit root supply shocks: A re-examination," Journal of Macroeconomics, Elsevier, vol. 68(C).
    16. Robert Barsky & Christoph E. Boehm & Christopher L. House & Miles Kimball, 2016. "Monetary Policy and Durable Goods," Working Paper Series WP-2016-18, Federal Reserve Bank of Chicago.
    17. Dietrich, Alexander M., 2023. "Consumption categories, household attention, and inflation expectations: Implications for optimal monetary policy," University of Tübingen Working Papers in Business and Economics 157, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    18. Cantelmo, Alessandro & Melina, Giovanni, 2023. "Sectoral labor mobility and optimal monetary policy," Macroeconomic Dynamics, Cambridge University Press, vol. 27(1), pages 1-26, January.
    19. Ireland, Peter N., 2003. "Endogenous money or sticky prices?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1623-1648, November.
    20. Batini, Nicoletta & Harrison, Richard & Millard, Stephen P., 2003. "Monetary policy rules for an open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11-12), pages 2059-2094, September.

    More about this item

    Keywords

    Energy crisis; macroeconomic instability; sunspots; monetary policy; heterogeneous households;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ajk:ajkdps:215. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ECONtribute Office (email available below). General contact details of provider: https://www.econtribute.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.