Energy Shocks, Pandemics and the Macroeconomy

81 Pages Posted: 31 Aug 2024

See all articles by Luisa Corrado

Luisa Corrado

University of Rome Tor Vergata Department of Economics and Finance

Stefano Grassi

University of Rome, Tor Vergata, Faculty of Economics, Department of Economics and Finance

Aldo Paolillo

University of Rome Tor Vergata

Francesco Ravazzolo

Free University of Bozen-Bolzano; BI Norwegian Business School - Department of Data Science and Analytics

Date Written: August 30, 2024

Abstract

This work studies the turbulent confluence of two major events-the COVID-19 pandemic and the Russian invasion of Ukraine-both of which caused significant disruptions in global energy demand and macroeconomic variables. We propose and estimate a two-sector Dynamic Stochastic General Equilibrium model that incorporates both crude and refined energy sources, thus combining together the multifaceted dynamics of the energy sector, where crude elements like oil, coal, and gas are intertwined with other production components. The model describes the transmission of energy shocks through complementarities in production and consumption, as a mechanism that amplifies the fluctuations of the business cycle. We find that the impact of price shocks on oil, coal, and gas accounts for 32% of the increase in the general price level between 2021:Q1 and 2022:Q4, and that oil and gas price shocks contributed most significantly. Finally, we discuss the case in which energy shocks can be Keynesian supply shocks.

Suggested Citation

Corrado, Luisa and Grassi, Stefano and Paolillo, Aldo and Ravazzolo, Francesco, Energy Shocks, Pandemics and the Macroeconomy (August 30, 2024). CEIS Working Paper No. 582, Available at SSRN: https://ssrn.com/abstract=4941456 or http://dx.doi.org/10.2139/ssrn.4941456

Luisa Corrado (Contact Author)

University of Rome Tor Vergata Department of Economics and Finance ( email )

Via Columbia n.2
Rome, rome 00100
Italy

Stefano Grassi

University of Rome, Tor Vergata, Faculty of Economics, Department of Economics and Finance ( email )

Via Columbia, 2
Rome, 00133
Italy

Aldo Paolillo

University of Rome Tor Vergata ( email )

Via di Tor Vergata
Rome, Lazio 00133
Italy

Francesco Ravazzolo

Free University of Bozen-Bolzano ( email )

Sernesiplatz 1
Bozen-Bolzano, BZ 39100
Italy

BI Norwegian Business School - Department of Data Science and Analytics ( email )

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