Energy commodity price shocks in the euro area: Evidence from a large-scale structural model

We estimate a large-scale open-economy DSGE model to assess the role of energy commodity prices in euro area inflation and short-run output dynamics. The model features rich pass-through from energy import prices to consumer and producer prices, distinguishing between the role of crude oil and natural gas in the imported energy bundle allocated between production and consumption. Transmission is quantified through direct effects on household energy consumption, indirect effects via energy as an intermediate input, and second-round general-equilibrium effects through, for example, wages and markups. Bayesian estimation suggests that in 2022, shocks to energy import prices alone added about 2 percentage points (pps) to inflation. Integrating broader energy measures in a reduced-form extension increases this contribution to over half of the 2021–22 surge (to around 3 pps). Backward-looking indexation, often associated with wage-price spirals, is estimated to be limited. The post-2020 surge leaves substitution elasticities broadly unchanged but points to a steeper Phillips curve and slightly lower real wage rigidity.