Energy price shocks, monetary policy and inequality

44 Pages Posted: 15 Apr 2024

See all articles by Alina Bobasu

Alina Bobasu

European Central Bank (ECB)

Michael Dobrew

European Central Bank (ECB)

Amalia Repele

Bocconi University

Date Written: March 20, 2024


We study how monetary policy shapes the aggregate and distributional effects of an
energy price shock. Based on the observed heterogeneity in consumption exposures
to energy and household wealth, we build a quantitative small open-economy HANK
model matching salient features of Euro Area data. Our model features energy as both
a consumption good for households with non-homothetic preferences as well as a factor
input into production with input complementarities. Independently of policy, energy
price shocks always lead to a reduction in aggregate consumption. Poor households are
more adversely affected through both a decline in labor income as well as negative direct
price effects. “Active” monetary policies raising rates in response to rising energy prices
amplify aggregate outcomes through a reduction in aggregate demand but speed up the
recovery by enabling households to rebuild wealth through higher returns on savings.
However, poor households are further adversely affected as they have little savings to
rebuild wealth from and instead loose due to further declining labor income.

Keywords: energy prices, open economy model, heterogeneous agents, monetary policy, non-homothetic preferences

JEL Classification: E52, F41, Q43

Suggested Citation

Bobasu, Alina and Dobrew, Michael and Repele, Amalia, Energy price shocks, monetary policy and inequality (March 20, 2024). Available at SSRN: or

Alina Bobasu

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Michael Dobrew (Contact Author)

European Central Bank (ECB) ( email )

Amalia Repele

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136

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