Energy price shocks and inflation in the euro area

Stefano Neri, Fabio Busetti, Cristina Conflitti (), Francesco Corsello (), Davide Delle Monache and Alex Tagliabracci
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Cristina Conflitti: Bank of Italy
Francesco Corsello: Bank of Italy

No 792, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper evaluates the role of supply shocks in driving inflation in the euro area since mid-2021, focusing in particular on shocks to energy prices. The analysis uses different empirical models (including Vector AutoRegressive models, time-varying Phillips curves and dynamic factor models) and shows that shocks to energy prices have had both direct and indirect effects on inflation. The contribution of these shocks to headline inflation is estimated to be around 60 per cent in the fourth quarter of 2022, while that to core inflation to range from 20 to 50 per cent, depending on the model. There is also evidence of an increase in the pass-through of energy prices to core inflation following the outbreak of the pandemic.

Keywords: inflation; energy prices; structural VAR; time-varying Phillips curve; Dynamic Factor model (search for similar items in EconPapers)
JEL-codes: C22 C32 C38 E31 (search for similar items in EconPapers)
Date: 2023-07
New Economics Papers: this item is included in nep-eec, nep-ene and nep-mon
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_792_23

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