To eat or to heat: are energy bills squeezing people's spending?

Andrea Colabella, Luciano Lavecchia, Valentina Michelangeli and Raffaella Pico ()
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Raffaella Pico: Bank of Italy

No 800, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper presents an assessment of the energy price shocks that hit Italian households starting in mid-2021 and their impact on households' financial vulnerability. First, we estimate the price elasticity of electricity and heating demand and compute the variation between 2020 and 2022 within the framework presented in Faiella and Lavecchia (2021b). Second, we study how those variations affected households' financial vulnerability, based on an extension of the modelling strategy proposed by Faiella et al. (2022). Our results indicate that, if energy price elasticity is not duly accounted for, financial vulnerability rises excessively on the heels of an energy price upsurge. In contrast, when consumption rebalancing within a dynamic microsimulation model is taken into account, financial vulnerability remains rather low and in line with supervisory data. While the risks for financial stability associated with energy shocks are therefore limited, this occurs at the of expense of household consumption and welfare.

Keywords: climate stress test; financial vulnerability; inflation; demand elasticity (search for similar items in EconPapers)
JEL-codes: C1 G5 Q41 Q54 Q58 (search for similar items in EconPapers)
Date: 2023-10
New Economics Papers: this item is included in nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_800_23

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