Natural gas and the macroeconomy: Not all energy shocks are alike

How do shocks to the supply of natural gas affect output and inflation? To answer this question, we construct an instrument using daily news on the European gas market and employ it within a VAR model of the euro area. We find that negative supply shocks have sizable stagflationary effects and accounted for nearly 50 percent of the increase in core prices observed between 2021 and 2023. The propagation to core prices appears to be larger compared to oil shocks, suggesting that the structural differences between the two markets matter from an aggregate perspective.