Gas Prices and the Macroeconomy

We identify supply and demand shocks to the real price of natural gas leveraging exogenous temperature variation and a high-frequency strategy based on an extensive collection of market-relevant news. Gas demand is less elastic than supply, resulting in larger price fluctuations following supply shocks. These shocks have notable macroeconomic effects: they are strongly inflationary in the Euro Area, with impacts amplified by inventory dynamics and financial market volatility, suggesting a transmission channel driven by expectations and uncertainty. As such, gas supply shocks have been a major driver of the recent inflation surge, while their impact has been more muted in the United States. Aggregate real effects appear short-lived, though we document substantial sectoral heterogeneity and a persistent decline in activity in Germany.

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Suggested citation: Colombo D., & Toni F. (2025) “Gas Prices and the Macroeconomy”