A New Keynesian framework with endogenous energy production is proposed to investigate the role of monetary policy in addressing disturbances in energy markets. The novelty of the model lies in the endogenous production of energy with convex costs, explicit modeling of goods with different degrees of energy-dependency and sectoral price rigidities. Our analyses prescribe the desirable monetary responses to four types of energy price shocks, highlighting the distinct characteristics of each shock and affirming the need for diverse policy considerations. We also found several points of divergence in relation to previous studies on addressing energy supply shocks. In addition, we shed light on the role of sectoral price rigidities in the shocks' propagation.
DSGE model, energy, energy price shock, monetary policy
Economics | Energy Policy
B.E. Journal of Macroeconomics
HUYNH, Bao Tan.
Monetary policy and energy price shocks. (2017). B.E. Journal of Macroeconomics. 17, (2), 1-27. Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/2106
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Available for download on Tuesday, May 01, 2018