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Francesco Simone Lucidi - University of Naples Federico II

Temperature news and the energy channel

Abstract

Using a new dataset of gridded temperature forecasts at the European level, we document that gas markets incorporate temperature expectations up to one week in advance. However, unexpected temperature surprises and forecast revisions operate through distinct channels: surprises trigger immediate adjustments in both prices and storage, while forecast news induces persistent price changes without quantity responses, consistent with the expectations channel in competitive storage models. We exploit this distinction to construct a monthly instrumental variable that isolates expectation-driven shifts in gas prices orthogonal to supply disruptions and realized demand shocks. Using local projections, we trace the transmission to producer and consumer prices in the euro area, documenting significant pass-through to core inflation. The shock propagates gradually through the production chain, prompting a delayed but substantial monetary policy response.

Seminario Dottorale – Dottorato di Ricerca in Economia e Politiche dei Mercati e delle Imprese

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