Current research
Look-Through or Look Closer? Energy Shocks and Underlying Inflation in the Euro Area
Draft available upon request.
Abstract: This paper studies the transmission of exogenous energy supply shocks to underlying inflation in the euro area. Using externally identified energy supply shocks and local projection methods, it examines whether and under which conditions energy price movements propagate beyond headline inflation into core inflation. The results show that energy shocks generate sharp but short-lived increases in energy and headline inflation, while pass-through to core inflation is delayed, persistent, and concentrated in non-energy industrial goods. Crucially, this pass-through is highly state dependent. When wage growth, inflation expectations, or headline inflation are elevated, or when energy price increases are large, energy shocks transmit into core inflation faster, more strongly, and more persistently. In low-inflation environments, pass-through is negligible. These findings imply that linear estimates mask important nonlinearities and that the appropriateness of “looking-through” energy shocks depends critically on prevailing macroeconomic conditions.
Energy Shocks, Consumption Inequality, and Fiscal Policy Design (with Momo Komatsu)
CfM Discussion Paper, Paper No CFM-DP2026-13
Abstract: Supply-driven energy price shocks generate substantial consumption inequality. Using US household expenditure data and instrumental variable local projections, we show that a one percentage point energy price increase reduces consumption of households in the lowest income decile by 0.5 percent, while consumption of those in the highest decile remains unchanged. This differential response persists for up to one year and reflects both higher energy expenditure shares and tighter liquidity constraints among low-income households. A two-agent New Keynesian model with two production sectors (energy and non-energy) and non-homothetic household preferences replicates these patterns and provides a framework for policy evaluation. At comparable fiscal cost (0.08 percent of GDP over two years), targeted cash transfers fully offset the consumption inequality increase, while energy subsidies reduce it by only half. Cash transfers dominate because they enable constrained households to allocate resources optimally across all consumption categories, whereas subsidies are restricted to energy expenditure. These findings inform the design of fiscal responses to relative price shocks affecting necessity goods.
Indexation and Cyclicality of Fiscal Policy: Evidence from a Panel Data Analysis (with Vybhavi Balasundharam, Arika Kayastha, and Alexandra Solovyeva)
Draft available upon request.
Policy publications
Daly, K and R Chankova (2021). “Inflation in the aftermath of wars and pandemics”, Goldman Sachs Global Economics Analyst, 25 March.
Featured in:
The Economist, April 29, 2021 (“What history tells you about post-pandemic booms”)
The New York Times, April 23, 2021 (“Some of the academic research that caught our eye”)
VoxEU, April 15, 2021 (“Inflation in the aftermath of wars and pandemics”)