Monetary policy should account for energy shocks, says study

Energy price hikes may cause spiral of higher unemployment and lower spending, paper says

Bank of Italy
The Bank of Italy
Photo: Aleksandrasana/Wikimedia Commons

Monetary policy should be partly accommodative of inflation during energy shocks to contain unemployment, a Bank of Italy study says.

In the working paper, Nicolò Gnocato argues that energy price shocks have a greater impact on people who are unemployed than on those who are in work. This is because energy costs take up a greater share of unemployed people’s expenditure. 

Higher energy costs also mean firms cut staff, says Gnocato, and higher unemployment causes people to rein in spending. This

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