Q41 Demand and Supply
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- Working Paper (2)
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- English (2)
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Keywords
- Energy crisis (1)
- German natural gas market (1)
- IV (1)
- Price elasticity of gasoline demand (1)
- cross-section (1)
- gasoline supply (1)
- gasoline tax (1)
- identification (1)
- narrative sign restrictions (1)
- natural gas price (1)
- pass-through (1)
- structural scenario analysis (1)
- vector-autoregression (1)
We use a structural VAR model to study the German natural gas market and investigate the impact of the 2022 Russian supply stop on the German economy. Combining conventional and narrative sign restrictions, we find that gas supply and demand shocks have large and persistent price effects, while output effects tend to be moderate. The 2022 natural gas price spike was driven by adverse supply
shocks and positive storage demand shocks, as Germany filled its inventories before the winter. Counterfactual simulations of an embargo on natural gas imports from Russia indicate similar positive price and negative output effects compared to what we observe in the data.
We propose a new instrument for estimating the price elasticity of gasoline demand that exploits systematic differences across U.S. states in the pass-through of oil price shocks to retail gasoline prices. These differences, which are primarily driven by variation in the cost of producing and distributing gasoline, create cross-sectional dispersion in gasoline price growth in response to an aggregate oil price shock. We find that the elasticity was stable near -0.3 until the end of 2014, but subsequently rose to about -0.2. Our estimates inform the recent debate about gasoline-tax holidays and policies to reduce carbon emissions.