The Impact of Permanent Energy Price Shocks on the UK Economy

55 Pages Posted: 28 Jul 2011

See all articles by Richard Harrison

Richard Harrison

Bank of England - Monetary Analysis

Ryland Thomas

Bank of England - Monetary Analysis

Iain de Weymarn

Bank of England

Date Written: July 26, 2011

Abstract

This paper outlines the properties of one of the models used at the Bank of England for analyzing the impact of energy prices on the UK economy. We build a dynamic general equilibrium model that includes a variety of channels through which energy prices affect demand and supply. On the demand side we model household consumption of final energy goods (petrol and utilities) separately from other goods and services. On the supply side, we model the production of final energy goods and the way that they enter the production process of other goods and services. We calibrate the model using UK data and examine how the various channels in the model contribute to the responses to permanent energy price shocks of a similar magnitude to those observed in the recent data. We show the effects of such shocks have important implications for monetary policy.

Keywords: energy prices

JEL Classification: E27, E37

Suggested Citation

Harrison, Richard and Thomas, Ryland and de Weymarn, Iain, The Impact of Permanent Energy Price Shocks on the UK Economy (July 26, 2011). Bank of England Working Paper No. 433, Available at SSRN: https://ssrn.com/abstract=1898066 or http://dx.doi.org/10.2139/ssrn.1898066

Richard Harrison (Contact Author)

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Ryland Thomas

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Iain De Weymarn

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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