Energy Supply Shocks and Inflation Expectations: A Functional Var Approach

Maximilian Boeck, Anja Bauer and Jonas Dovern

No 13047, CESifo Working Paper Series from CESifo

Abstract: This paper studies how energy supply shocks affect the entire cross-sectional distribution of household inflation expectations. Using monthly German survey data from 2003 to 2025, we estimate a functional vector autoregression that combines macroeconomic aggregates with the expectation distribution and identify oil supply news shocks and natural gas supply shocks using external instruments. Oil shocks induce a hump-shaped rightward shift of the distribution, increase disagreement, and disproportionately move probability mass toward very high expectations. Natural gas shocks generate faster but smaller responses. In both cases, households overestimate the inflationary effects of the shocks. We further document substantial heterogeneity across household types by splitting the survey sample based on age, gender, and other characteristics. Given evidence that higher moments of the expectation distribution matter for macroeconomic dynamics, monitoring only average expectations is likely to understate the business-cycle consequences of energy supply shocks.

Keywords: inflation expectations; functional VAR; energy; supply shocks (search for similar items in EconPapers)
JEL-codes: C32 D84 E31 E52 Q43 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_13047

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