Energy Inflation and Consumption Inequality

Ricciutelli, Francesco (2024): Energy Inflation and Consumption Inequality.

Abstract

Recent research unveiled the heterogeneous effects of rising energy prices for low-income and high-income European households, as they tend to purchase distinct consumption baskets. We explore the effects of energy inflation on consumption inequality in a Two-Agent New Keynesian (TANK) model with an exogenous energy sector, and look for the optimal monetary policy response to an energy price shock. We find that rising energy prices widen consumption inequality through the expansions of inflation and income gaps. The effects of a maximizing welfare monetary policy are partially approximated by a core inflation targeting Taylor rule.

• Item Type: MPRA Paper
• Language: English
• Keywords: TANK Models; Energy; Consumption Inequality; Monetary Policy
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; I - Health, Education, and Welfare > I1 - Health > I14 - Health and Inequality; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

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