The impact of higher energy prices on Austrian GDP

Summary

This paper provides empirical estimates on the impact of a 50% rise in energy prices (relative to 2019) on Austrian GDP. We find that in such a scenario, Austrian GDP could decrease by up to 0.9% in the short run. Should energy prices stay higher permanently, additional output losses could occur via downward adjustments in capital stock. Our estimates highlight the relevance of energy prices for policymakers and can inform subsequent analyses on different economic policy options.

Highlights

Higher energy prices significantly dampen GDP 
Our estimates show that following a 50% rise in energy prices (relative to 2019), Austrian GDP would drop by between 0.7% and 0.9% in the short run. This finding is well within the range of previous estimates from empirical studies. 

Model extension considers monopolistic competition 
For our estimations, we extend the partial-equilibrium short-run supply-side approach of Knetsch and Molzahn (2012) by introducing monopolistic competition and deriving exact GDP impact elasticity. 

Model relies on firm-level data from Austria 
We use Austrian firm-level data to inform the model results, given that these are sensitive to the elasticity of substitution between capital and energy and to the markup factors employed.