Title page
Contents
Abstract 2
Non-technical summary 3
1. Introduction 4
2. Model 10
2.1. Households 11
2.2. Labor union 12
2.3. Domestic production 14
2.4. Mutual fund 14
2.5. International markets and prices 15
2.6. Monetary Policy 16
2.7. Equilibrium 17
3. Calibration and steady state 17
4. Energy price shocks and monetary policy 20
4.1. Elasticities of substitution in consumption and production 20
4.2. Aggregate effects 22
4.3. Decomposition of aggregate consumption response 27
4.4. Distributional effects 30
5. Conclusions 32
References 34
Appendix 38
A. Derivation of New Keynesian Wage Philips Curve 38
B. Further details on consumption decomposition 39
C. Comparison of HANK with RANK model 41
D. A closed economy setup 42
E. Hump-shaped energy price shock 44
F. Comparison across different supply shocks 46
G. Savings response for low- and high-wealth households 49
Table 1. Calibration 18
Figure 1. Energy prices, terms of trade, households' consumption exposures and savings across the income distribution 4
Figure 2. Steady state wealth distribution, consumption composition and MPCs 19
Figure 3. Transmission channel of non-homothetic preferences 20
Figure 4. Role of elasticity of substitution in consumption and production 22
Figure 5. Effects of an energy price shock under contemporaneous monetary policy rules 24
Figure 6. Effects of an energy price shock under forecast rules 26
Figure 7. Aggregate consumption decomposition for contemporaneous and forecast rules 28
Figure 8. Consumption response of low- and high-wealth households under contemporaneous and forecast monetary policy rules 30
Figure 9. Consumption decomposition for low- and high-wealth households 32
Figure A1. Consumption decomposition for core and energy rules 40
Figure A2. Comparison of HANK and RANK models 41
Figure A3. Open versus closed economy 43
Figure A4. Comparison of energy price shocks with different time profile 45
Figure A5. Comparison of policy rules for energy price shocks with different time profile 46
Figure A6. Comparison of the effects of the energy shock with those of a productivity and a price mark-up shock 48
Figure A7. Savings response to an energy, productivity and price mark-up shock 49
Figure A8. Savings response under head monetary policy rules 50