LIST OF ABBREVIATIONS  7

LIST OF FIGURES  8

LIST OF TABLES  8

EXECUTIVE SUMMARY  9

1. BACKGROUND AND CONTEXT  10

2. SUPPLY SHOCKS AND THE MONETARY POLICY TRADE-OFF  11

3. DETERMINANTS OF THE PERSISTENCE OF SUPPLY SIDE SHOCKS  12

3.1. Composition of energy price shocks  12

3.2. Expectations and second-round effects  14

3.3. Non-linear transmission mechanisms  15

3.4. Distributional and Structural Effects  16

4. THE CURRENT ENERGY CRISIS IN CONTEXT  17

4.1. Magnitude of the current shock  17

4.2. Inflation and inflation expectations developments  18

4.3. Household consumption and consumer confidence  19

5. THE MACROECONOMIC AND WELFARE EFFECTS OF THE ENERGY-PRICE SHOCK IN A HANK MODEL  21

6. IMPLICATIONS FOR ECB MONETARY POLICY  24

REFERENCES  27

ANNEX  29

Description of the HANK model  29