Paula Patzelt

Working papers

No single market for electricity: production location and the productivity value of integration

Job market paper

Preliminary. First draft: April 2026.

When an input cannot be traded freely, production may sort across locations by input costs rather than productivity advantages. This paper estimates the aggregate productivity cost of electricity market fragmentation in Europe. Electricity price differences reflect both natural advantages and policy choices and therefore are not necessarily inefficient. I develop a model in which gains from integration depend on how much production moves, where it moves, and how national electricity prices respond. To estimate how much production reallocates, I use a quasi-natural experiment in Norway, where new interconnectors during the gas crisis created persistent price gaps within the country. Production shifts out of high-price regions in proportion to sector electricity intensity, almost entirely through the number of active firms rather than the scale of continuing ones. In the calibrated 23-economy model of Europe, a full electricity union raises manufacturing productivity by 13 basis points and by 35 bp in the most electricity-intensive divisions. Over 80% of the gain comes from production reallocating towards more productive locations and clusters rather than firms adjusting in place. The value of integration almost triples by 2040 as industry electrifies and the expansion of renewables widens price dispersion. Integration also insures against energy crises and halves generation emissions at current carbon prices.

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. 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. (* 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] [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

• 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.