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Gas price shocks and euro area inflation

Author

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  • Adolfsen, Jakob Feveile
  • Ferrari Minesso, Massimo
  • Mork, Jente Esther
  • Van Robays, Ine

Abstract

This paper develops a Bayesian VAR model to identify three structural shocks driving the European gas market: demand, supply and inventory shocks. We document how gas price fluctuations have a heterogeneous pass-through to euro area prices depending on the underlying shock driving them. The pass-through is stronger and more persistent when gas prices are driven by aggregate demand or supply pressures, while inventory shocks have a weaker impact. Supply shocks, moreover, are found to pass through to all components of euro area inflation – producer prices, wages and core inflation, which has implications for monetary policy. We finally document how the response of gas prices to shocks is non-linear and is significantly magnified in periods of low unemployment. JEL Classification: C50, C54, E30, E31, Q43

Suggested Citation

  • Adolfsen, Jakob Feveile & Ferrari Minesso, Massimo & Mork, Jente Esther & Van Robays, Ine, 2024. "Gas price shocks and euro area inflation," Working Paper Series 2905, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20242905
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    More about this item

    Keywords

    euro area; gas price; pass-through; price;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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