Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/300818 
Year of Publication: 
2024
Series/Report no.: 
DIW Discussion Papers No. 2089
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
This paper first shows that, contrary to conventional wisdom, the European Central Bank (ECB) can influence global energy prices. Second, through Lucas critique-robust counterfactual analysis, we uncover that the ECB's ability to affect fast-moving energy prices plays an important role in the transmission of monetary policy. Third, we empirically document that, to optimally fulfill its primary mandate, the ECB should swiftly tighten policy in response to an increase in energy prices. Crucially, the tightening required depends on the ECB's ability to influence global energy prices. Finally, we find this policy strategy could have largely prevented the post-pandemic inflation episode.
Subjects: 
inflation
energy prices
monetary policy transmission mechanism
JEL: 
C22
E31
E52
Q43
Document Type: 
Working Paper

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