Energy Price Shocks and their Effects on the Main Macroeconomic Variables: A Bayesian SVAR Analysis

Abstract

This paper integrates the global crude oil market and the European natural gas market into a Bayesian SVAR model to investigate the sources and macro effects of energy price movements. We identify shocks to oil and gas supply and demand. The contribution of oil supply shocks in explaining real oil-price movements is smaller than that of oil-specific demand shocks. Similarly, gas-specific demand shocks contribute more than gas supply shocks to the real gas-price movements. More specifically, gas-specific demand accounts for about 60 per cent of the gas price movements observed between March and December 2022, whereas supply factors contributed for about 30 per cent. In 2023, oil supply and aggregate demand shocks had a non-negligible role in explaining the swing in the real price of oil. Finally, the shocks arising in both oil and gas markets negatively affect Italian industrial production, value added and investment in energy-producing, energy-intensive and non-energy intensive sectors. The impacts are stronger for energy-intensive sectors in the case of an adverse oil supply shock. 

Keywords: energy prices, crude oil, natural gas, Bayesian VAR, macroeconomic impacts, energy-producing, energy-intensive and non-energy-intensive sectors

JEL Classification: C32, Q43, D25