Impact of High Energy Prices on Germany’s Potential Output

By Yushu Chen, Ting Lan, Aiko Mineshima, Jing Zhou

July 24, 2023

Preview Citation

Format: Chicago

Yushu Chen, Ting Lan, Aiko Mineshima, and Jing Zhou. Impact of High Energy Prices on Germany’s Potential Output, (USA: International Monetary Fund, 2023) accessed November 21, 2024

Summary

The surge in energy prices since Russia’s invasion of Ukraine has reduced the energy-intensive sector’s production in Germany, although the non-energy intensive sector’s production has held up thanks in part to firms’ efforts to improve energy efficiency. Energy prices are expected to remain elevated in the foreseeable future, compared to pre-war levels, adversely affecting firms’ productivity and thus lowering Germany’s potential output. Economic modeling suggests that this effect could be around 1¼ percent of GDP in staff’s baseline, with some uncertainty around this estimate, depending on the ultimate magnitude of the energy price shock and the degree to which increased energy efficiency can mitigate it. Policies can promote effective adjustment to the shock by increasing productivity and maintaining strong price incentives to conserve energy and invest in renewable energy production.

Subject: Energy conservation, Energy prices, Environment, Fuel prices, International organization, Monetary policy, Potential output, Prices, Production, Productivity

Keywords: Directed technical change, Effect favor, Energy conservation, Energy efficiency, Energy efficiency response, Energy prices, Fuel prices, Germany, Global, Optimization problem, Potential growth, Potential output, Price effect, Price signal, Productivity, Surge in energy price

Publication Details

Pages:

14
Volume:

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DOI:

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Issue:

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Series:

Selected Issues Paper No. 2023/059
Stock No:

SIPEA2023059
ISBN:

9798400248603
ISSN:

2958-7875

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