Natural gas and the macroeconomy: not all energy shocks are alike

Piergiorgio Alessandri () and Andrea Giovanni Gazzani
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Piergiorgio Alessandri: Bank of Italy

No 1428, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: How do shifts in the supply of natural gas affect output and inflation? To answer this question, we construct an instrument for gas supply shocks using a large set of daily news on the European gas market over the 2010-2022 period and use the instrument within a Bayesian VAR model. We find that negative supply shocks are stagflationary and that their effects materialize over far longer horizons than those of oil supply shocks, with peaks (troughs) in core inflation (industrial production) that follow the shock by two years or more. This pattern is consistent with the structural features of the gas market, and it suggests that European economies are still grappling with the large price spikes that took place in 2022.

Keywords: natural gas prices; inflation; narrative identification; Bayesian VAR (search for similar items in EconPapers)
JEL-codes: E31 E32 Q35 Q43 (search for similar items in EconPapers)
Date: 2023-11
New Economics Papers: this item is included in nep-eec and nep-ene
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1428_23

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