Philip R Lane: Analytical perspectives on energy supply shocks
Dinner remarks by Philip R. Lane, Member of the Executive Board of the European Central Bank, at the Centre for European Reform, London, 13 May 2026.
Slides accompanying the speech
My aim in this speech is to outline some of the analysis carried out by ECB economists in relation to energy supply shocks. I do not attempt to provide a comprehensive account; rather, I will focus on a selective set of issues. In the final part of the speech, I will discuss the implications for monetary policy.
The economic impact of supply-driven oil price increases
In order to quantify the impact of the current oil price shock on the euro area economy, ECB staff have estimated a Bayesian vector autoregressive (VAR) model. The model includes a series of identified geopolitical oil supply shocks along with the global real price of oil, a global economic activity indicator, euro area real GDP, private consumption, investment, consumer prices, and short and long-term interest rates. The source of an oil price movement is crucial in assessing its macroeconomic impact. Unlike a demand-driven increase, which typically reflects stronger global growth and supports economic activity, a supply-driven increase weighs on activity in oil-importing economies such as the euro area. This has an impact through higher production costs, lower real household income, weaker global demand and elevated uncertainty, with the latter typically more pronounced when shocks are geopolitical in nature.