Paula Patzelt

Working papers

Connecting Electricity Markets: Production Reallocation and Aggregate Productivity

Job market paper

When an input cannot be traded freely, production may sort across locations by cost rather than productivity advantages. This paper estimates the aggregate productivity effect of electricity market integration in Europe, where price differences are not necessarily inefficient because they partly reflect natural advantages. I develop a model in which the effect depends on how much production moves towards lower costs, how that advantage erodes as demand grows, and whether the receiving locations are more productive. I estimate production reallocation using a quasi-natural experiment in Norway, where new interconnectors coinciding with Europe’s gas crisis opened persistent regional price gaps. Higher electricity prices reduce the number of active firms in proportion to sector electricity intensity, with a similar response across EU countries. In the calibrated model, a full EU-23 electricity union raises manufacturing productivity by 17 basis points, 37~bp within the most electricity-intensive divisions, and lowers generation emissions at recent carbon prices. The productivity gain matches a 10\% cut in electricity prices, although the average price rises. The gain arises because the union relieves productive locations of high electricity prices and lets established industrial clusters grow. By 2040, electrification and an uneven renewable build-out more than triple the gain, of which planned interconnection captures about a fifth.

Presentations: LSE Macroeconomics, EEE Energy Markets Mini-Conference, QMUL Economics and Finance Workshop 2026, LSE EEE Hour, HEC Economics PhD Conference 2026, XXIX Workshop on Dynamic Macroeconomics, CESifo Junior Workshop on International Economics 2026, 18th Nordic Summer Symposium in Macroeconomics and Finance (Normac), Oslo Macro Conference 2026, 2nd Conference on Applied Macroeconomics (scheduled).

Winner of the best paper prize at CESifo Junior Workshop on International Economics 2026.

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

Submitted. Revised June 2026.

[CEPR DP] [Presentation video]

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. Further, the causal impact of a supply shock to electricity prices is gradual, peaking only 8 to 12 months after impact. This paper arrives at these estimates by exploiting cross-sectional variation from newly-available panel data on expected inflation by Euro area households across region, gender, education, and income, and on the cost of energy across region and source, and by proposing new measures of supply shocks. The estimates imply that households under-react to electricity price changes, that the rise in electricity prices in 2021-23 accounted for a small share of the rise in expected inflation, and that anchoring expectations is important in the face of supply shocks.

Presentations: CEBRA webinar Inflation drivers & dynamics 2024*, Paris Conference on the Macroeconomics of Expectations 2024*, EEA Rotterdam 2024, Reykjavík Economic Conference 2025*, BlackRock GFI Brown Bag Seminar. (* by coauthor)

Media: [FT] [Twitter]

Renewable energy supply shocks from wind electricity

Submitted. Revised November 2025.

[CFM DP] [CESifo WP] [SSRN] [Presentation video]

This paper identifies electricity supply shocks by exploiting the fact that variations in wind speed at turbine locations are exogenous with respect to macroeconomic outcomes and drive electricity prices in European wholesale markets inframarginally. Instrumenting electricity price changes with these wind supply shocks, I find that higher electricity prices raise inflation and reduce electricity use as expected, but generate surprising effects on economic activity. Unemployment rises, but industrial production also rises over time, and the effect on GDP is negligible. As these effects differ markedly from the impact of oil price shocks, they suggest that as economies electrify and shift electricity generation toward renewables, business cycle dynamics may persistently change.

Presentations: LSE Macroeconomics, Norges Bank, RES PhD Conference 2024, CESifo/ifo Junior Workshop on Energy and Climate Economics 2025, RES Easter Training School 2025, LSE Environment Camp 2025, LSE EEE Hour, Frankfurt Summer School 2025, UniTo/CCA PhD Workshop in Economics 2025.

Publications

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

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

[Ungated] [CEPR DP] 

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.

Data and figures: [GitHub]

Media: [FT] [NYT]

Work in progress

• Optimal storage capacity (with Tuo Fan and Silvana Tenreyro)

• How do firms adjust to electricity price shocks? (with Lovisa Reiche)

• Keynesian energy supply shocks (with Enisse Kharroubi)

• 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 are updated regularly.

[Website] [GitHub repository] 

Media: [NYT]

Conferences

London Macro PhD Workshop: I co-founded a workshop for PhD students working on Macroeconomics who are based in or around London. The first edition took place on 14 November 2025. The workshop is set to repeat annually.