Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278310 
Year of Publication: 
2022
Series/Report no.: 
ECONtribute Discussion Paper No. 215
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
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.
Subjects: 
Energy crisis
macroeconomic instability
sunspots
monetary policy
heterogeneous households
JEL: 
E31
E32
E52
F41
Q43
Document Type: 
Working Paper

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