This paper traces the existence of an energy transmission channel of temperature anomalies to Euro-Area inflation. We show that, on average, warmer temperature shocks elicit a negative energy demand shift, exerting moderate deflationary pressure. By looking into several asymmetries and macroeconomic indicators, we rationalize that evidence as signaling that the “turn-off-heating” effect in Europe outweighs the “turn-on-cooling”. This result becomes clearer when energy market responses are decomposed into gas and electricity components. Weak inflationary effects from non-energy items are at play when the shock hits during warm seasons. A persistent inflationary tendency manifests when food and energy prices rise, an outcome emerging only when negative anomalies – cold spells – hit. These findings shed new light on monitoring price stability due to global warming.
The effects of temperature shocks on energy prices and inflation in the Euro Area / Lucidi, FRANCESCO SIMONE; Pisa, MARTA MARIA; Tancioni, Massimiliano. - In: EUROPEAN ECONOMIC REVIEW. - ISSN 0014-2921. - 166:(2024), pp. 1-24. [10.1016/j.euroecorev.2024.104771]
The effects of temperature shocks on energy prices and inflation in the Euro Area
Francesco Simone Lucidi;Marta Maria Pisa
;Massimiliano Tancioni
2024
Abstract
This paper traces the existence of an energy transmission channel of temperature anomalies to Euro-Area inflation. We show that, on average, warmer temperature shocks elicit a negative energy demand shift, exerting moderate deflationary pressure. By looking into several asymmetries and macroeconomic indicators, we rationalize that evidence as signaling that the “turn-off-heating” effect in Europe outweighs the “turn-on-cooling”. This result becomes clearer when energy market responses are decomposed into gas and electricity components. Weak inflationary effects from non-energy items are at play when the shock hits during warm seasons. A persistent inflationary tendency manifests when food and energy prices rise, an outcome emerging only when negative anomalies – cold spells – hit. These findings shed new light on monitoring price stability due to global warming.File | Dimensione | Formato | |
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