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Friend, Not Foe? Monetary Policy and Energy Prices

Author

Listed:
  • Gökhan Ider
  • Alexander Kriwoluzky
  • Frederik Kurcz
  • Ben Schumann

Abstract

We empirically show that a central bank’s ability to affect global energy prices crucially alters monetary policy transmission. We first provide novel evidence that euro area monetary policy significantly affects energy prices. Employing a Lucas critique-robust counterfactual framework, we find that this ability strengthens and accelerates transmission to inflation and substantially alleviates the inflation-output trade-off. We further show that this ability materially shapes the mandate-optimal policy response to an energy supply shock: the optimal response implies a smaller interest rate increase and a more favorable inflation-output allocation than in a scenario where energy prices are unaffected by monetary policy.

Suggested Citation

  • Gökhan Ider & Alexander Kriwoluzky & Frederik Kurcz & Ben Schumann, 2026. "Friend, Not Foe? Monetary Policy and Energy Prices," Berlin School of Economics Discussion Papers 0102, Berlin School of Economics.
    • Handle: RePEc:bdp:dpaper:0102
    DOI: 10.48462/opus4-6295
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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