Understanding Gas Price Shocks: Elasticities, Volatility and Macroeconomic Transmission

Daniele Colombo and Francesco Toni
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Daniele Colombo: London Business School
Francesco Toni: Université Côte d'Azur, CNRS, GREDEG, France

No 2025-20, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: We identify supply and demand shocks to the real price of natural gas in the Euro Area and the United States. Demand shocks are identified using exogenous temperature variations, while supply shocks are identified through a high-frequency strategy based on an extensive collection of market-relevant news. This approach enables us to estimate gas market elasticities and uncover key transmission channels through which gas price shocks affect the broader macroeconomy. Our findings show that gas demand in the Euro Area adjusts more slowly than in the United States, amplifying the inflationary impact of supply shocks. This effect is reinforced by inventory accumulation and financial volatility, pointing to a transmission channel driven by expectations and uncertainty. The aggregate real effects appear limited, though we document substantial sectoral heterogeneity.

Keywords: Gas price shocks; gas supply; gas demand; elasticities; proxy-VAR; external instruments; temperature deviations; inflation (search for similar items in EconPapers)
JEL-codes: C32 E31 Q38 Q41 Q43 (search for similar items in EconPapers)
Pages: 102 pages
Date: 2025-05
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