Current research
Look-Through or Look Closer? Energy Shocks and Underlying Inflation in the Euro Area
Abstract: This paper studies the transmission of energy supply shocks to underlying inflation in the euro area. Using an externally identified oil supply news shock and local projections, it shows that pass-through to core inflation is essentially absent when inflation is low and stable and emerges only when inflationary pressures are elevated. Over the full sample, the response of core inflation is delayed, persistent, and concentrated in non-energy industrial goods, but this average is driven by the 2021-23 episode: on data ending in 2020, the same shock raises energy, food, and headline inflation while leaving core inflation essentially unchanged. State dependent estimates show that high inflation expectations, high headline inflation, and large oil price increases amplify the peak response of core inflation, while high wage growth makes it more persistent. The results reconcile the small pass-through found in earlier studies, which drew on samples dominated by low-inflation regimes, with the experience of 2021-23, and imply that the case for looking through energy shocks is itself state dependent.
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”)