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Natural gas and the macroeconomy: not all energy shocks are alike

Author

Listed:
  • Piergiorgio Alessandri

    (Bank of Italy)

  • Andrea Gazzani

    (Bank of Italy)

Abstract
How do shifts in the supply of natural gas affect output and inflation? To answer this question, we construct an instrument for gas supply shocks using a large set of daily news on the European gas market over the 2010-2022 period and use the instrument within a Bayesian VAR model. We find that negative supply shocks are stagflationary and that their effects materialize over far longer horizons than those of oil supply shocks, with peaks (troughs) in core inflation (industrial production) that follow the shock by two years or more. This pattern is consistent with the structural features of the gas market, and it suggests that European economies are still grappling with the large price spikes that took place in 2022.

Suggested Citation

  • Piergiorgio Alessandri & Andrea Gazzani, 2023. "Natural gas and the macroeconomy: not all energy shocks are alike," Temi di discussione (Economic working papers) 1428, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1428_23
    as

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    File URL: https://www.bancaditalia.it/pubblicazioni/temi-discussione/2023/2023-1428/en_tema_1428.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. 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.
    2. López, Lucia & Odendahl, Florens & Parrága, Susana & Silgado-Gómez, Edgar, 2024. "The pass-through to inflation of gas price shocks," Working Paper Series 2968, European Central Bank.
    3. Davide Delle Monache & Claudia Pacella, 2024. "The drivers of inflation dynamics in Italy over the period 2021-2023," Questioni di Economia e Finanza (Occasional Papers) 873, Bank of Italy, Economic Research and International Relations Area.
    4. Stefano Neri, 2024. "There has been an awakening. The rise (and fall) of inflation in the euro area," Questioni di Economia e Finanza (Occasional Papers) 834, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    natural gas prices; inflation; narrative identification; Bayesian VAR;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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