We develop a Bayesian Structural VAR model to study the relationship between different energy shocks and inflation dynamics in Europe. Specifically, we model the endogenous transmission from shocks identified by the global market of crude oil and the European natural gas market to two target macroeconomic variables, i.e. inflation expectations and realized headline inflation rate. Our results demonstrate that, since the post-pandemic recovery, inflation in the Euro area is mostly driven by energy price shocks and aggregate supply factors. In particular, the high peaks of the Eurozone inflation are mostly associated with natural gas supply shocks.

UPDATE: July 5, 2023


Suggested citation: C. Casoli, M. Manera, D. Valenti, ‘Energy shocks in the Euro area: disentangling the pass-through from oil and gas prices to inflation’, Nota di Lavoro 045.2022, Milano, Italy: Fondazione Eni Enrico Mattei