Energy shocks and inflation: challenges for monetary policy

by Ryan Niladri Banerjee, Fiorella De Fiore, Marco Jacopo Lombardi, Giovanni Lombardo The recent energy shock ranks among the most significant since the 1990s. Structural factors and initial conditions influence how energy shocks propagate into inflation – directly and through second-round effects. The appropriate monetary policy reaction depends on the persistence of the inflationary pressures as well as the magnitude of the growth impact, and it differs across economies.