Gas price shocks and euro area inflation

Jakob Adolfsen, Massimo Ferrari Minesso, Jente Esther Mork and Ine Van Robays

No 2905, Working Paper Series from European Central Bank

Abstract: This paper develops a Bayesian VAR model to identify three structural shocks driving the European gas market: demand, supply and inventory shocks. We document how gas price fluctuations have a heterogeneous pass-through to euro area prices depending on the underlying shock driving them. The pass-through is stronger and more persistent when gas prices are driven by aggregate demand or supply pressures, while inventory shocks have a weaker impact. Supply shocks, moreover, are found to pass through to all components of euro area inflation – producer prices, wages and core inflation, which has implications for monetary policy. We finally document how the response of gas prices to shocks is non-linear and is significantly magnified in periods of low unemployment. JEL Classification: C50, C54, E30, E31, Q43

Keywords: euro area; gas price; pass-through; price (search for similar items in EconPapers)
Date: 2024-02
New Economics Papers: this item is included in nep-eec, nep-ene, nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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Journal Article: Gas price shocks and euro area inflation (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20242905

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