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Energy Supply Shocks and Inflation Expectations: A Functional Var Approach

Author

Listed:
  • Maximilian Boeck
  • Anja Bauer
  • Jonas Dovern

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.

Suggested Citation

  • Maximilian Boeck & Anja Bauer & Jonas Dovern, 2026. "Energy Supply Shocks and Inflation Expectations: A Functional Var Approach," CESifo Working Paper Series 13047, CESifo.
    • Handle: RePEc:ces:ceswps:_13047
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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