Energy supply shocks’ nonlinearities on output and prices

Roberto A. De Santis and Tommaso Tornese

No 2834, Working Paper Series from European Central Bank

Abstract: We use a Bayesian Threshold Vector Autoregression model identified through sign and narrative restrictions to uncover non-linearities in the propagation of energy supply shocks. We find that the transmission of energy supply shocks on consumer prices is stronger in high-inflation regimes, supporting state-dependent models. The faster pass-thorough of energy supply shocks to consumer prices (excl. energy) cushions the drop in output in the short term. Energy supply shocks have a stronger impact on output in the medium-term with manufacturing being more adversely affected than GDP. Large energy supply shocks shift the economy to another state but after two and half years the mean-reversion to lower inflation implies a more moderate transmission mechanism, highlighting the importance of state-dependent impulse responses. The energy supply shocks between July 2021 and June 2022 are massive amounting to 3.9 standard deviations on average each month. JEL Classification: C32, E32

Keywords: Business cycles; energy shocks; narrative identification; non-linearities; TVAR (search for similar items in EconPapers)
Date: 2023-07
New Economics Papers: this item is included in nep-ene
Note: 185689
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20232834

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