Gas Prices and the Macroeconomy

Daniele Colombo and Francesco Toni
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Daniele Colombo: London Business School

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 leveraging exogenous temperature variation and a high-frequency strategy based on an extensive collection of market-relevant news. Gas demand is less elastic than supply, resulting in larger price fluctuations following supply shocks. These shocks have notable macroeconomic effects: they are strongly inflationary in the Euro Area, with impacts amplified by inventory dynamics and financial market volatility, suggesting a transmission channel driven by expectations and uncertainty. As such, gas supply shocks have been a major driver of the recent inflation surge, while their impact has been more muted in the United States. Aggregate real effects appear short-lived, though we document substantial sectoral heterogeneity and a persistent decline in activity in Germany.

Keywords: Business cycles; gas price shocks; gas supply; gas demand; elasticities; external instruments; temperature deviations; inflation (search for similar items in EconPapers)
JEL-codes: C32 E31 Q41 Q43 (search for similar items in EconPapers)
Pages: 96 pages
Date: 2025-05, Revised 2026-07
New Economics Papers: this item is included in nep-eec and nep-ene
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Persistent link: https://EconPapers.repec.org/RePEc:gre:wpaper:2025-20

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