Paula Patzelt

Working papers

Estimating the rise in expected inflation from higher energy prices (with Ricardo Reis)

Submitted. First draft: February 2024.

Current draft, CEPR discussion paper, presentation video

Media: Financial Times, Twitter thread

When the price of electricity increases by 1%, households’ expected inflation increases by 1.2 to 1.5 basis points. But, if those expectations have become unanchored, then the effect is higher by 0.2 to 1.5 bps. This paper arrives at these estimates by exploiting variation both in the time series, and especially in the cross section, from newly-available public data on expected inflation by Euro area households across region, gender, education, and income, and on the cost of energy across region and source. New measures of supply shocks to energy prices derived from the structure of the electricity market raise expected inflation gradually for 8 to 12 months. The rise in energy prices in 2021-23 accounts for only a small share of the rise in expected inflation.

Renewable energy supply shocks from wind electricity

Preliminary. First draft: August 2024.

Preliminary draft

This paper studies the effects of energy prices on the macroeconomy by identifying exogenous electricity supply shocks from wind. Due to merit order pricing in electricity wholesale markets, wind electricity supply is first used to satisfy demand and hence directly relevant for electricity prices in Europe. To isolate the supply-relevant variation in wind independent of demand, I propose three identification strategies exploiting variation in unexpected wind, cross-border electricity supply, and differential wind electricity generation capacity shares, which all yield similar electricity supply shocks. These provide strong instruments for changes in electricity prices, which have significant effects on the macroeconomy, leading to broad-based price increases without a negative response of macroeconomic activity. The effects of higher electricity prices are state dependent and asymmetric due to the shape of the electricity supply curve, and differ from those of oil supply, with electricity supply shocks more likely to appear as Keynesian.

Publications

Household disagreement about expected inflation (with Salomé Fofana and Ricardo Reis)

In Research Handbook of Inflation, edited by Guido Ascari and Riccardo Trezzi, Edward-Elgar, chapter 15, April 2025. 

First draft: February 2024. Draft version, CEPR discussion paper

Data and figures: GitHub

We survey the main facts that have emerged from research on disagreement between households on what they expect inflation to be. We document them using figures and correlations that capture: the statistical regularities on the observable drivers of disagreement, the measurement of residual disagreement, the usefulness of disagreement to forecast inflation, the response of disagreement to shocks, the disagreement between households and professionals, and the relation between disagreement, risk, and uncertainty.

Work in progress

• Firm credit risk spillovers through financial networks

• Commodity shocks, inflation, and expectations (with Ryan Banerjee and Boris Hofmann)

• Banking and economic synchronization: insights from micro data (with Jin Cao, Ragnar Juelsrud, and Karolis Liaudinskas)

Data

Household disagreement about expected inflation: Measures of disagreement from the Michigan Survey of Consumers (MSC), the FRB New York Survey of Consumer Expectations (SCE), and the ECB Consumer Expectations Survey (CES). Data and figures are based on public sources and will be updated regularly.

See the website and GitHub repository for details.