Tracing the Inflationary Effects of Energy Price Shocks in the EU: Evidence from a Structural VAR Approach

Sammanfattning

Recent geopolitical and structural developments have triggered a period of heightened volatility in European energy markets, with important implications for inflation dynamics. This thesis investigates how shocks to key energy prices - crude oil, natural gas, coal, diesel, gasoline, and electricity - affect both headline and core inflation in the European Union. Using a structural vector autoregression (SVAR) framework, we apply a hybrid identification strategy combining recursive ordering and heteroskedasticity-based methods to identify causal effects. In line with previous literature, we find that the overall pass-through to both headline and core inflation is relatively modest. However, substantial heterogeneity emerges across energy types and between headline and core measures of inflation. Our approach allows us to distinguish global demand-driven price movements from energy-specific cost shocks and offers a more granular understanding of inflation dynamics. The findings underscore the importance of disaggregating energy prices in inflation analysis and highlight the need for differentiated policy responses depending on the source of energy shocks.