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Energy Commodity Price Shocks in the Euro Area Evidence from a Large-Scale Structural Model

Author

Listed:
  • Beatrice Pataracchia
  • Philipp Pfeiffer
  • Marco Ratto
  • Jan Teresiński

Abstract

We estimate a large-scale open-economy DSGE model to assess the role of energy commodity prices in euro area inflation and short-run output dynamics. The model features rich pass-through from energy import prices to consumer and producer prices, distinguishing between natural gas and crude oil and their use in both consumption and production. Transmission is quantified through direct effects on household energy consumption, indirect effects via energy as an intermediate input, and second-round general-equilibrium effects through, for example, wages and markups. Bayesian estimation suggests that in 2022, shocks to energy import prices alone added about 2 percentage points (pps) to inflation. Integrating broader energy measures increases this contribution to over half of the 2021–22 surge (to around 3 pps). Backward-looking indexation, often associated with wage–price spirals, is estimated to be limited. The post-2020 surge leaves substitution elasticities broadly unchanged but points to a steeper Phillips curve and slightly lower real wage rigidity.

Suggested Citation

  • Beatrice Pataracchia & Philipp Pfeiffer & Marco Ratto & Jan Teresiński, 2025. "Energy Commodity Price Shocks in the Euro Area Evidence from a Large-Scale Structural Model," European Economy - Discussion Papers 233, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:dispap:233
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    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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