Energy Shocks, Pandemics and the Macroeconomy

Luisa Corrado, Stefano Grassi (), Aldo Paolillo () and Francesco Ravazzolo ()
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Stefano Grassi: DEF, University of Rome "Tor Vergata", http://www.ceistorvergata.it
Aldo Paolillo: DEF, University of Rome "Tor Vergata", http://www.ceistorvergata.it
Francesco Ravazzolo: Free University of Bozen-Bolzano

No 582, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: This work studies the turbulent confluence of two major events - the COVID-19 pandemic and the Russian invasion of Ukraine - both of which caused significant disruptions in global energy demand and macroeconomic variables. We propose and estimate a two-sector Dynamic Stochastic General Equilibrium model that incorporates both crude and refined energy sources, thus combining together the multifaceted dynamics of the energy sector, where crude elements like oil, coal, and gas are intertwined with other production components. The model describes the transmission of energy shocks through complementarities in production and consumption, as a mechanism that amplifies the fluctuations of the business cycle. We find that the impact of price shocks on oil, coal, and gas accounts for 32% of the increase in the general price level between 2021:Q1 and 2022:Q4, and that oil and gas price shocks contributed most significantly. Finally, we discuss the case in which energy shocks can be Keynesian supply shocks.

Pages: 81 pages
Date: 2024-08-30, Revised 2024-08-30
New Economics Papers: this item is included in nep-cis, nep-dge and nep-ene
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