State-Dependent Pass-Through with Heterogeneous Exposure to Common Shocks

Raphael Lafrogne-Joussier, Julien Martin and Isabelle Mejean

No 21156, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study state-dependent pass-through using the recent surge in energy cost as a natural experiment. The empirical analysis exploits data on firms' exposure to energy-driven cost shocks, matched with firm and product-level output prices from the French Producer Price Index (PPI). Pass-through of energy cost shocks increased from 70% before the energy crisis to full pass-through in 2021-2022. The pass-through of energy shocks is also found higher among the most exposed firms. A state-dependent model à la Cavallo et al. (2024) augmented with heterogeneous exposure to energy price shocks can replicate these patterns. The model is used to show how heterogeneity in firms' exposure to common shocks affects the aggregate response of the economy to a macro supply shock.

Keywords: Inflation; Pass-through; Energy prices (search for similar items in EconPapers)
JEL-codes: D22 E31 E32 Q43 (search for similar items in EconPapers)
Date: 2026-02
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