Paula Patzelt

Working papers

No single market for electricity: aggregate productivity costs of price dispersion

Preliminary. First draft: April 2026.

Electricity prices differ by several multiples across European countries, reflecting a combination of natural advantages and policy choices about generation mix, market design, and cross-border transmission. I ask how much aggregate productivity is lost because policy-induced price dispersion misallocates production across countries. A structural model of firm location across segmented electricity markets separates price dispersion into resource-based advantages versus policy residuals, and introduces an electricity-congestion channel depending on the marginal generation source. I estimate responses in production activity using a quasi-natural experiment from Norway, where new interconnectors created large price differentials across bidding zones, and corroborate them in a European cross-country panel. Municipality-level outcomes in high-price zones grow more slowly than in low-price zones, while the extensive-margin response scales with electricity intensity, revealing a compositional shift between sectors. The calibrated model decomposes the productivity gap from policy-induced dispersion into shares correctable by market integration alone versus changes in generation policy, evaluating a full electricity union, realistic transmission expansion, and national renewable generation trajectories.

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 (scheduled), Normac 2026 (scheduled), Oslo Macro Group 2026 (scheduled).

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

Submitted. First draft: February 2024. 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 (scheduled). (* by coauthor)

Media: [FT] [Twitter]

Renewable energy supply shocks from wind electricity

Submitted. First draft: August 2024. Revised November 2025.

[CFM DP] [CESifo WP] [SSRN]

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

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

• Keynesian energy supply shocks (with Enisse Kharroubi)

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

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

• Optimal storage (with Tuo Fan and Silvana Tenreyro)

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. 

The submission deadline for 2026 is 15 August!