Gas Prices and the Macroeconomy

We identify supply and demand shocks to the real price of natural gas leveraging exogenous temperature variation and high-frequency price movements around gas-supply events. Gas demand is less elastic than supply, leading to larger price fluctuations following supply shocks. These shocks have notable macroeconomic effects: strongly inflationary in the Euro Area, amplified by inventory dynamics and financial volatility, suggesting a transmission channel driven by expectations and uncertainty. They were a major driver of the post-pandemic inflation surge, though effects were more muted in the U.S. Aggregate real effects appear short-lived, though we document notable sectoral heterogeneity and a substantial decline in German activity.