Title page
Contents
Abstract 2
Non-technical summary 3
1. Introduction 4
2. Institutional Framework 7
2.1. A Brief History of the European Gas Market 7
2.2. Narrative Episodes of Supply-Driven Gas Price Disruptions 8
3. The Baseline Empirical Framework 11
4. The Pass-through to HICP Inflation of Gas Supply Shocks 14
4.1. Estimates for the Largest Euro Area Economies 16
5. Has the Pass-through Changed Over Time? 19
6. The Theoretical Framework 22
6.1. Households 23
6.2. Final Good Sector 25
6.3. Intermediate Firms 25
6.4. Monetary Policy and Resource Constraints 27
6.5. Calibration 27
6.6. Results 29
7. Conclusions 35
References 36
Appendix 41
A. Robustness Checks 41
B. Month-on-Month Estimates 45
C. Alternative Narrative Sign Restrictions 46
D. HICP Energy Components Weights 47
E. Historical Shock Decomposition of Real GDP Growth 48
Table 1. BVAR Identifying Restrictions 13
Table 2. Probability Rejecting Narrative Sign Restrictions 16
Table 3. Model Parameters 28
Figure 1. Timeline of the European Gas Market 7
Figure 2. Euro Area Gas Imports by Origin. 1997-2021 8
Figure 3. Episodes of Exogenous Gas Supply Shocks 9
Figure 4. Europe: Russian gas imports and prices 11
Figure 5. Gas Prices Pass-through to Headline Inflation in the Euro Area 16
Figure 6. Gas Price Pass-Through to Headline Inflation by Country 17
Figure 7. Composition of Gas Price Pass-Through to Headline Inflation by Country 18
Figure 8. Cumulative impact of oil and gas price shocks on HICP inflation over time 21
Figure 9. Oil and gas price shocks 22
Figure 10. Forecast error variance decomposition of HICP inflation over time 22
Figure 11. IRFs to a 10% increase in the real gas price 29
Figure 12. IRFs to a 10% increase in the real gas price: Direct vs. Indirect Effects 30
Figure 13. IRFs to a 10% increase in the real gas price: The role of Nominal Rigidities 31
Figure 14. IRFs to a 10% increase in the real gas price: The Role of Monetary Policy 32
Figure 15. Historical shock decomposition of headline inflation in the euro area 35
Figure A.1. Other commodities prices 41
Figure A.2. Other controls for economic activity 42
Figure A.3. Additional controls for supply shocks 42
Figure A.4. Sample: 1997 to 2010 43
Figure A.5. Sample: 2010 to 2022 43
Figure A.6. Sample: 1997 to 2019 44
Figure A.7. Sample: 2010 to 2019 44
Figure B.1/Figure B.8. Baseline BVAR Results - month-on-month growth rates 45
Figure C.1/Figure C.9. Gas Prices Pass Through to HICP in the Euro Area for Alternative Narrative Sign Restrictions 46
Figure D.1. HICPS Energy Components Weights 47
Figure E.1. Historical shock decomposition of real GDP growth in the euro area 48