Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322043 
Year of Publication: 
2025
Series/Report no.: 
ECB Working Paper No. 3032
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We construct a New-Keynesian E-DSGE model with energy disaggregation and financial intermediaries to show how energy-related fiscal and macroprudential policies interact in affecting the euro area macroeconomy and carbon emissions. When a shock to the price of fossil resources propagates through the energy and banking sector, it leads to a surge in inflation while lowering output and carbon emissions, absent policy interventions. By contrast, imposing energy production subsidies reduces both CPI and core inflation and increases aggregate output, while energy consumption subsidies only lower CPI inflation and reduce aggregate output. Carbon subsidies instead produce an intermediate effect. Given that both energy subsidies raise carbon emissions and delay the "green transition," accompanying them with parallel macroprudential policy that taxes dirty energy assets in bank portfolios promotes "green" investment while enabling energy subsidies to effectively mitigate the adverse effects of supply-type shocks, witnessed in recent years in the EA.
Subjects: 
DSGE model
energy sector
energy subsidies
financial frictions
macroprudential policy
JEL: 
E52
E62
H23
Q43
Q58
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-7119-5
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.