The session will take place on site from 12:00 – 1:15 pm.
Venue: Juridicum, Adenauerallee 24-42, Bonn
Title: "The Macroeconomics of Energy Price Controls" (with Alan Olivi and Dajana Xhani)
Since the invasion of Ukraine in 2022, several governments have regulated electricity and gas prices to shield households from sharp increases in inflation. We analyse the welfare effects of such policies, considering not only their direct impacts on consumption and distributional outcomes but also their macroeconomic implications and interactions with monetary policy. We derive a welfare formula within a multi-sector New Keynesian framework featuring heterogeneity in income, wealth, and consumption baskets. Our results show that energy price controls can enhance social welfare by alleviating the central bank’s trade-off between the output gap and inflation, which may outweigh the adverse welfare effects of distorted consumption baskets. Stabilizing the aggregate demand effects of such price controls may require large interest rate adjustments, generating adverse redistributive consequences. We apply our framework quantitatively to the energy price cap implemented by the UK government.