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The Response of European Energy Prices to ECB Monetary Policy

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  • Torró, Hipòlit

Abstract

To our knowledge, this paper is the first to discuss the response of European energy commodity prices to unexpected monetary policy surprises from the European Central Bank. Using the Rigobon (2003) identification through heteroscedasticity method, we find a significant and positive response during the crisis period for Brent and coal. Similar results are obtained by other authors for European financial assets in this period. This result reinforces the idea that during this period, financial assets and some commodities positively responded to conventional and unconventional expansionary monetary policy measures, increasing confidence about the survival of the European monetary union. The remaining European energy commodities (electricity, EUAs, and natural gas prices) seem to be unaffected by monetary policy actions. We think these results are of interest to those economic agents and institutions involved in European energy markets and are especially important for the European Central Bank in order to predict the consequences of its monetary policy on the inflation objective.

Suggested Citation

  • Torró, Hipòlit, 2018. "The Response of European Energy Prices to ECB Monetary Policy," ET: Economic Theory 269537, Fondazione Eni Enrico Mattei (FEEM).
  • Handle: RePEc:ags:feemth:269537
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    References listed on IDEAS

    as
    1. Rosa, Carlo, 2014. "The high-frequency response of energy prices to U.S. monetary policy: Understanding the empirical evidence," Energy Economics, Elsevier, vol. 45(C), pages 295-303.
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    Keywords

    Research Methods/ Statistical Methods;

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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