Energy Price Shocks Research Articles

Mar Reguant discussion of: Policy responses to energy price shocks

Mar Reguant discussion of: Policy responses to energy price shocks

Natalia Fabra discussion of: Policy responses to energy price shocks

Natalia Fabra discussion of: Policy responses to energy price shocks

Economic and supply chain impacts from energy price shocks in Southeast Asia

Following the war in Ukraine, it became evident that substantial energy price increases had complex impacts on the economic systems and supply chains throughout the Southeast Asian region. In this article, we employ a global applied general equilibrium model (GTAP-E-PowerS) to examine how ongoing energy price increases might affect sectors, economies and emissions levels of the region. We additionally investigate how technological development including energy efficiency gains, utilisation of capital and how output augmenting technologies may help mitigate costs. Our findings indicate demand for renewable energy by private and industrial sectors increase substantially as a substitute for traditional fossil fuels, but are not adequate to compensate for losses. Agriculture and food sectors are not significantly affected, suggesting less hazards to food security as they are not energy-intensive. Manufacturing, transport and electricity generation sectors, which are energy-intensive, are materially adversely affected. More interestingly, however, is the primary energy supply sectors, viz. oil and gas extraction, and petroleum product manufacturing sectors, whose output declines by 20–70 % across countries. Real GDP also declines substantially, by 1.0–3.8 % in the Philippines, Singapore, Vietnam, Indonesia, Malaysia and Thailand. Conversely, total emissions decline by 6–22 % across countries. Of the options considered, investment in improving utilisation of capital resources is found to be the most effective against energy price shocks.

The importance of heat pump cost reduction and domestic supply chain development in the presence of persisting energy price shocks

In this paper we conduct economy-wide scenario simulations to investigate whether and how the wider economic stimulus associated with deploying heat pumps in the UK may help mitigate the macroeconomic and distributional impacts of persistently high electricity and gas prices. Our results show that expansionary processes triggered by producing and installing heat pumps can help offset contractionary pressures associated with higher energy prices. However, outcomes depend on the extent of domestic supply chain content in manufacturing heat pumps, on installation costs to households, on how and where government revenues accrue. Moreover, the relative importance of drivers varies over time. For example, higher purchase and installation costs may support a greater initial stimulus via producer and domestic supply chain gains, despite the greater cost burden on households. However, over time, cost reductions are required to deliver the most favourable economy-wide outcomes.

Energy shocks in the Euro area: Disentangling the pass-through from oil and gas prices to inflation

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.

Distributional and climate implications of policy responses to energy price shocks

SUMMARY Which households are most affected by energy price shocks? How do interventions in energy markets affect these patterns? To investigate these questions, this paper introduces a measurement framework that leverages granular property-level data representing more than 50% of the English and Welsh housing stock. This framework will form the basis for current and future studies on the heterogeneous effects of the energy crisis more broadly. We find that the energy price shock has a more pronounced effect on relatively more affluent areas where energy use is higher at baseline. We document that commonly used untargeted interventions in energy markets significantly weaken market price signals for able-to-pay households. Alternative, more targeted policies are cheaper, easily implementable, and could better align energy-saving incentives.

Post-COVID inflation and the monetary policy dilemma: an agent-based scenario analysis

AbstractThe economic shocks that followed the COVID-19 pandemic have brought to light the difficulty, both for academics and policy makers, of describing and predicting the dynamics of inflation. This paper offers an alternative modelling approach. We study the 2020–2023 period within the well-studied Mark-0 Agent-Based Model, in which economic agents act and react according to plausible behavioural rules. We include a mechanism through which trust of economic agents in the Central Bank can de-anchor. We investigate the influence of regulatory policies on inflationary dynamics resulting from three exogenous shocks, calibrated on those that followed the COVID-19 pandemic: a production/consumption shock due to COVID-related lockdowns, a supply chain shock, and an energy price shock exacerbated by the Russian invasion of Ukraine. By exploring the impact of these shocks under different assumptions about monetary policy efficacy and transmission channels, we review various explanations for the resurgence of inflation in the USA, including demand-pull, cost-push, and profit-driven factors. Our main results are fourfold: (i) without appropriate fiscal policy, the shocked economy can take years to recover, or even tip over into a deep recession; (ii) the success of monetary policy in curbing inflation is primarily due to expectation anchoring, rather than to the direct economic impact of interest rate hikes; (iii) however, perhaps paradoxically, strong inflation anchoring is detrimental to consumption and unemployment, leading to a narrow window of “optimal” policy responses due to the trade-off between inflation and unemployment; (iv) the two most sensitive model parameters are those describing wage and price indexation. The results of our study have implications for Central Bank decision-making, and offer an easy-to-use tool that may help anticipate the consequences of different monetary and fiscal policies.

GEOPOLITICS OF ENERGY RESOURCES: RECONSIDERING SECURITY AT THE GLOBAL LEVEL

The article analyses the impact of the russian-Ukrainian war on global energy markets as a trigger for rethinking the general context of energy security. Based on the latest scientific research, the author considers energy security issues' shifting from isolated aspects such as supply chain stability to an integrated geoeconomic approach. The article presents the factors that caused the national subjects' volatility regarding energy security depending on the energy market structure, relations between consumers and producers, supply and demand trends, technological changes, and readiness for potential energy supply crises or price shocks. The author's special attention is focused on the ties between energy resources and the military dimension, namely: 1) energy militarization as a cause of military actions; 2) energy resources as a secondary element of war; 3) energy profits as a source of financing armed conflicts. Against the background of increased strategic competition, most countries are leaning towards alternative spaces for developing joint political decisions, such as the friend-shoring concept, which signals a new form of protectionism for geopolitical reasons and the formation of potential chokepoints in supply chains. However, a transnational energy platform can catalyse the synergistic potential of allies, reduce security risks, and minimize supply disruptions due to political and economic influences. The success of a full-fledged launch of a transnational platform on energy security will depend on attractiveness strategies for "resourceful" but politically neutral countries; unification of production standards between participants; and the degree of reducing supply chain vulnerability relative to the participation costs.

Adapting fiscal strategies to energy and food price shocks in Portugal

Economies that are dependent on imported inputs are vulnerable to external shocks affecting international prices. Although the effects of these shocks have been widely documented in the literature, strategies to effectively mitigate them remain underexplored. Using a recursive-dynamic computable general equilibrium (CGE) model, we examined the impact of global energy and food price shocks on the Portuguese economy. Moreover, we evaluated fiscal policies aimed at mitigating these impacts by boosting consumption through wage increases, cash transfers, consumption subsidies, and revitalizing economic activities with reduction in production tax. The findings suggest that reduction in production tax is the best mitigation option, as it directly improves sectoral competitiveness, promotes employment, and stimulates consumption. In contrast, a consumption-focused fiscal strategy is costlier and exclusively enhances household purchasing power. Notwithstanding, raising wages inadvertently worsens persistent inflation due to increased production costs and demand. Exploring various financing options is necessary to assess policy effectiveness and consistency over time.

Evaluating the Impact of Energy Price Shocks on Emerging Countries from the Non-Euro Area: A Macroeconomic Analysis

Abstract Exogenous shocks like the COVID-19 pandemic or the Russian conflict affected the global economy, but mostly emerging economies. Even though the critical moments have passed, the negative effects on the economy are still present in the current economic environment, characterized by high levels of uncertainty. Exogenous events, which have an uncertain likelihood of occurring, harm economies regardless of their development. In fact, a framework for unanticipated events is vital, as are steps to achieve low levels of national debt and increased authority stability. In this context, the objective of this paper is to examine the dynamic relationships between energy prices and certain macroeconomic variables, which were affected by the fact that the energy crisis triggered by the Russian-Ukrainian conflict overlapped with the accelerated transition to a green economy and the decarbonization process. The CEE countries are more vulnerable to the energy crisis, and their proximity to the front lines of military conflict can be an important fact to take into account. The research focuses on the Czech Republic, Hungary, Poland, and Romania. The empirical analysis was conducted on monthly frequency data and in order to present an effective method of modeling interactions between macroeconomic variables, the Bayesian technique was employed.

Inflation returns. Revisiting the role of external and domestic shocks with Bayesian structural VAR

Following recent exceptional events in the world economy inflation increased remarkably across most countries, reinvigorating the prevalent discussion on the sources of consumer price dynamics. We analyse this issue for the small open economy of Poland by means of the Bayesian structural VAR. The model describes the evolution of eight key macroeconomic variables and is identified with a set of zero and sign restrictions. This framework, applicable also to other small open economies, provides sound economic interpretation of three domestic and five external shocks, of which two are country-specific and the remaining three are purely global. In a robust manner we show that country-specific energy price shocks and global supply shocks mostly determine the recent inflation surge in Poland. We illustrate that inflation response to these two shocks has become markedly more persistent after the outbreak of the Covid-19 pandemic. We also demonstrate that the choice of an inadequate energy prices proxy may result in underestimating the contribution of the energy price shock to inflation, whereas accounting for recent geopolitical threats and other exogenous events does not alter our baseline findings.

The economic and energy security implications of the Russian energy weapon

The Russian–Ukrainian war of 2022 sent shockwaves through the global economy and disrupted energy markets on an unprecedented scale. The conflict not only caused extensive devastation in Ukraine but also triggered a commodity supply shock in various international markets. In this paper, we look at the impacts of this energy weapon and the global consequences of its use. We investigate the interplay between gas market fluctuations, energy price shocks, and trade dependencies, while offering insights into building resilient global systems for a sustainable and secure energy futures. Using a novel approach we combine energy trade modelling and integrated assessment modelling to compare a hypothetical counterfactual scenario, with no price and supply shock, to a scenario of disrupted trade and regionalized gas prices. We conclude that the Russian energy weapon had only had short-term economic consequences, but influences energy-system transformation in the EU, accelerating diversification and renewable deployment.

Effects of energy price shock on the macroeconomic indicators of India: a new measure

Purpose The purpose of this study is to construct a new index to assess the impact of an energy price shock on macroeconomic indicators of India. This paper also shows a comparative analysis of the constructed index along with pre-existing World Bank and International Monetary Fund indices on energy. Design/methodology/approach This paper uses three vector autoregressions and compute the long-term impact of the indices on the considered macroeconomic variables through impulse response functions. Findings This paper finds that an energy price shock has a detrimental impact on the macroeconomic indicators of India in the long run. This study also finds that the constructed index acts as a relatively more sensitive index in comparison to the International Monetary Fund and World Bank indices, which is bespoke to a developing economy case. This sensitivity is ascribed to dynamic weighting for a different basket of energy components, which are more pertinent to an Indian context. Originality/value The novelty of this research lies in the construction of a new index and its comparison to the existing ones. This study justifies why a developing economy would require a different measure of energy as opposed to the existing indices.

Energy price shocks and stock market volatility in an energy-importing country

We examine volatility dynamics in the Korean market using heterogeneous autoregressive models with exogenous covariates. The COVID-19 pandemic and the Russia–Ukraine War have caused substantial fluctuations in energy prices. We assess how these energy shocks affect stock market-implied volatility in Korea, a representative energy-importing country. During the pre-pandemic period, domestic and U.S. market factors affect Korea's volatility dynamics, whereas crude oil and natural gas futures prices have little explanatory power for these dynamics. In contrast, during the pandemic (war), oil (natural gas) futures prices become the key explanatory variable, and other market factors lose their explanatory power.

The War between Russia and Ukraine and its Impact on Bangladesh: A Comprehensive Study

This comprehensive study investigates the impact of the ongoing war between Russia and Ukraine on the Bangladeshi economy, focusing on various dimensions including trade disruptions, energy and commodity price shocks, remittances, foreign direct investment (FDI), macroeconomic stability, and daily commodities. Drawing on an extensive literature review, the study synthesizes existing research on the economic consequences of geopolitical conflicts, with particular attention to the multifaceted effects of the Russia-Ukraine war on indirectly involved countries like Bangladesh. The analysis reveals that the conflict has led to significant challenges in areas such as trade, energy and commodity prices, remittances, FDI, and macroeconomic stability, with potential consequences for the Bangladeshi economy, including slowed growth, increased inflation, and currency fluctuations. Furthermore, the study highlights the impact of the conflict on the prices and availability of daily commodities, which can affect the cost of living, purchasing power, and overall quality of life. Based on these findings, the study offers recommendations for policymakers and stakeholders to adopt strategies that mitigate the adverse effects of the conflict, promote economic resilience, and ensure the well-being of the population. This study contributes to the understanding of the economic implications of geopolitical conflicts and serves as a valuable resource for policymakers, researchers, and practitioners interested in the broader effects of the Russia-Ukraine war on global economies.

The macroeconomic impact of energy price shocks: Threshold effects and the fracking boom

This paper utilizes the Tsay test for a structural break in a vector autoregression incorporating real oil prices, oil production, interest rates and U.S. economic activity and finds that the system’s parameters changed in 2012, which coincides with the large run-up in oil production in the U.S. due to the fracking boom. Since then, impulse response analysis indicates that the economy is better able to produce oil when oil prices rise, making high oil prices less detrimental to the real economy. When searching for threshold effects with regard to real oil prices pre and post 2012, we find that the lower threshold is relatively unchanged at roughly $50/barrel (in 2020 dollars), but the upper threshold has increased substantially, from approximately $68/barrel in the early sample to almost $96/barrel in the later sample. Interestingly, when employment in oil and gas extraction is added to the system, this study finds that while domestic oil production remains more sensitive to an increase in real oil prices since 2012, the same cannot be said for industry employment.

WITHDRAWN: Does stock return affect decomposed energy shocks differently? Evidence from a time frequency quantile-based framework

We study the interconnections and consequences of fluctuations in energy prices on the returns of stocks within both highly optimistic and pessimistic market conditions, considering both short and extended timeframes. The research follows a two-part methodology: initially breaking down energy price shocks into components of demand, supply, and risk using the Ready method, and subsequently applying a quantile frequency connectedness technique. The outcomes demonstrate that the correlation between energy price shocks and stock returns in the enlarged BRICS markets is substantial during extremely bullish and bearish periods, but comparatively lower during normal circumstances. Among the various types of energy price shocks, those driven by shifts in demand exhibit a more pronounced influence on stock returns compared to supply and risk-induced shocks. The transmission of effects from energy price shocks to stock returns becomes evident over extended periods, i.e., beyond five days, particularly in the context of extreme bullish and bearish market conditions. Notably affected by these shocks, mainly in the long term, are the oil-exporting countries such as Russia, Brazil and the upcoming joiner Saudi Arabia (KSA), as well as China – an oil-importing nation. Given the economic and political significance of the inclusion of the heavyweight oil-exporting nations in BRICS is likely to make in minimising the gap between the global North and the South, these findings hold significant implications for both investors and policymakers, guiding them in making well-informed investment choices and crafting effective strategies for managing risks.

Inflation and Energy Price Shocks: Lessons From the 1970s

Inflation and Energy Price Shocks: Lessons From the 1970s

Energy price shocks, monetary policy and inequality

Energy price shocks, monetary policy and inequality

Energy Price Shocks, Monetary Policy and Inequality

Energy Price Shocks, Monetary Policy and Inequality