Title page 1

Contents 1

Abstract 2

Non-technical Summary 3

1. Introduction 5

2. Overview of the Multi-Sector Models 7

3. Temporary increase in carbon-intensive energy price 10

3.1. Cross-model comparison 11

3.2. The role of monetary policy 20

3.3. Input-output structure and the energy shock transmission 21

3.4. Role of price rigidities 22

3.5. Key Takeaways 23

4. Permanent increase in carbon-intensive energy price 23

4.1. Cross-model comparison and the role of monetary policy 23

4.2. Role of expectations during the transition 31

4.3. Key Takeaways 32

5. Conclusion 32

References 34

Appendix 38

A. Models 38

B. Additional Results 44

Acknowledgements 50

Tables 9

Table 1. Multi-sector climate models 9

Figures 12

Figure 1. Temporary scenario for the euro area 12

Figure 2. Temporary scenario for the euro area 13

Figure 3. Temporary scenario for the euro area 15

Figure 4. Temporary scenario for the United States 16

Figure 5. Temporary scenario for the United States 17

Figure 6. Temporary scenario: Monetary policy 19

Figure 7. Impact of carbon-intensive energy shock on inflation and output across countries 21

Figure 8. Sensitivity to price rigidities 22

Figure 9. Permanent scenario for the euro area; monetary policy targets a long-run trend 25

Figure 10. Permanent scenario for the euro area; monetary policy targets long-run output 26

Figure 11. Permanent scenario for the euro area; monetary policy targets a long-run trend 28

Figure 12. Permanent scenario for the euro area; monetary policy targets long-run output 29

Figure 13. Permanent scenario: Monetary policy 30

Figure 14. Alternative expectations about the permanent scenario 31

Figure 15. Impact of expectation formation on the transition 32

Appendix Figures 44

Figure B.1. Temporary scenario for CL 44

Figure B.2. Temporary scenario - Role of monetary policy for the euro area 45

Figure B.3. Temporary scenario - Role of monetary policy for the United States 46

Figure B.4. Temporary scenario - Role of monetary policy for Chile 47

Figure B.5. Permanent scenario - Role of monetary policy for the euro area 48

Figure B.6. Permanent scenario - Role of monetary policy for the United States 49