Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/267490 
Year of Publication: 
2022
Series/Report no.: 
Working Paper No. 025.2022
Publisher: 
Fondazione Eni Enrico Mattei (FEEM), Milano
Abstract: 
Soaring energy prices since fall 2021 have prompted European governments to introduce policy measures to support households and businesses. In this paper, we employ the MATRIX model, a multi-sector and multi-agent macroeconomic model calibrated on the Euro Area, to analyze the economic and distributional effects of different types of macro-stabilization policies in response to energy price shocks. Simulation results show that, in the absence of stabilization policies, an increase in fossil fuel price would lead to a sharp growth in price inflation and a severe contraction in real GDP, followed by a slow but steady recovery. We find no significant effects of generalized tax cuts and household subsidies, while firm subsidies promote a faster recovery but at the expense of greater financial instability in the medium term due to the resulting market distortions. If timely adopted, government-funded energy tariff reduction is the most effective policy in mitigating GDP losses at relatively low public costs, especially if coupled with an extra-profit tax on energy firms. Energy entrepreneurs benefit from rising fuel prices in all policy scenarios, but to a lesser extent under energy tariff cuts and windfall profits tax, favouring, in that case, workers and downstream firms owners.
Subjects: 
Energy shocks
Policy analysis
Agent-based models
Macroeconomic dynamics
JEL: 
C63
E63
O13
Q43
Document Type: 
Working Paper

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