Working Papers

"On Curbing the Rise in Energy Prices: An Examination of Different Mitigation Approaches"

Author(s): Natascha Hinterlang, Marius Jäger, Nikolai Stähler, Johannes Strobel
Deutsche Bundesbank Discussion Paper No 09/2024
The dependency on imported essential production inputs poses a threat of abrupt price hikes and shortages, potentially triggered by political events. The energy crisis resulting from the Russian war of aggression is an example. This paper investigates whether governments should bolster production via transfers or cost subsidies in the event of a crisis, utilizing a dynamic multi-sector economic model that is calibrated to Germany and incorporates endogenous firm entry and exit. Our findings suggest that subsidizing production costs is more beneficial for economic activity and welfare, provided the energy demand due to the subsidy does not significantly influence the price of the essential production input. If it does, this approach could become exceedingly expensive. In such scenarios, it is economically more efficient to provide lump-sum transfers to firms. The effectiveness of these policies ultimately hinges on their impact on the price of the imported input.

"Win as a Team or Fail as Individuals: Cooperation and Non-Cooperation in the Climate Tax Game"

Author(s): Marten Hillebrand
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This paper studies the strategic interaction of arbitrarily many heterogeneous regions in a macroeconomic growth model of climate change. Regions differ with respect to production technologies, productivity and factor endowments, stocks of fossil fuels, and climate damages. They trade on frictionless international markets for capital and fossil fuels and choose climate policies under different scenarios of cooperation and non-cooperation. I derive closed form solutions of optimal poli- cies for the non-cooperative equilibrium where regions internalize only domestic climate damages and cases with partial cooperation where regions form coalitions and choose policies to maximize welfare of their coalition. Efficient carbon taxation obtains as the special case with full cooperation corresponding to a grand coalition that internalizes global climate damages. I study how transfers can incentivize re- gions to cooperate and determine a class of optimal transfer schemes under which all regions are better-off under full cooperation relative to the non-cooperative out- come. Numerical simulations based on calibrated parameter values illustrate and quantify the theoretical results for different coalition scenarios.

"Does Idealistic Investment Behavior Promote Green Growth? A General Equilibrium Perspective"

"Network Exposure in the Propagation of the COVID-19 Pandemic"