Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/287760 
Year of Publication: 
2024
Series/Report no.: 
Deutsche Bundesbank Discussion Paper No. 09/2024
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
The dependency on imported essential production inputs poses a threat of abrupt price hikes and shortages, potentially triggered by political events. The energy crisis resulting from the Russian war of aggression is an example. This paper investigates whether governments should bolster production via transfers or cost subsidies in the event of a crisis, utilizing a dynamic multi-sector economic model that is calibrated to Germany and incorporates endogenous firm entry and exit. Our findings suggest that subsidizing production costs is more beneficial for economic activity and welfare, provided the energy demand due to the subsidy does not significantly influence the price of the essential production input. If it does, this approach could become exceedingly expensive. In such scenarios, it is economically more efficient to provide lump-sum transfers to firms. The effectiveness of these policies ultimately hinges on their impact on the price of the imported input.
Subjects: 
Dynamic General Equilibrium Model
Input-Output Matrix
Energy crisis
Gas Price Brake
JEL: 
E32
E50
E62
H32
Q58
ISBN: 
978-3-95729-982-6
Document Type: 
Working Paper

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