Euro Area on Alexander Kriwoluzky

Friend, Not Foe? Monetary Policy and Energy Prices

Thu, 09 Apr 2026 00:00:00 +0000

Abstract

We empirically show that a central bank’s ability to affect global energy prices crucially alters monetary policy transmission. Drawing on high-frequency event-study evidence and a Bayesian proxy structural VAR for the euro area, we find that an unexpected tightening by the ECB leads to a strong and persistent decline in global oil prices and in consumer energy prices. Employing a Lucas critique-robust counterfactual framework, we document that this channel strengthens and accelerates transmission to inflation and roughly halves the sacrifice ratio. We further show that the central bank’s ability to influence energy prices materially shapes the mandate-optimal response to an energy supply shock: when energy prices are endogenous to policy, the optimal reaction features a smaller interest rate increase and a more favorable inflation-output allocation than in a scenario where energy prices are unaffected by monetary policy.

Weather-related Disasters and Inflation in the Euro Area

Thu, 01 Aug 2024 00:00:00 +0000

Abstract

This paper investigates the impact of weather-related disasters on inflation in the euro area over the period 1996–2021. Using a panel structural VAR, we examine whether disasters have a significant and persistent effect on headline inflation and how demand-side and supply-side channels contribute to the overall response. We also analyse heterogeneous effects across inflation components and assess the distributional implications for households. Our results suggest that weather-related disasters have a positive but non-persistent effect on aggregate inflation, reflecting the dominance of negative supply and positive demand channels over negative demand channels. The inflationary impact is particularly pronounced for expenditure categories that account for a larger share of the consumption basket of low-income households, implying that disasters reinforce inflation inequality and may complicate the task of the European Central Bank in maintaining price stability as the climate crisis intensifies.

Exit expectations and debt crises in currency unions

Fri, 01 Feb 2019 00:00:00 +0000

Abstract

We study a sovereign debt crisis in a small member state of a currency union. If the country exits the currency union, it may redenominate its liabilities and reduce the real value of debt through depreciation and inflation. We analyze formally how the anticipation of this possibility, “exit expectations”, impact the dynamics of the sovereign debt crisis. First, we show that public debt accumulates faster and sovereign yields increase more strongly because of redenomination risk. Second, we find that exit expectations induce public debt to be stagflationary. Last, we analyze Greek time-series data through the lens of our model and quantify the contribution of exit expectations to the Greek crisis.