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A Silver Lining? The European Energy Crisis through the Lens of Directed Technical Change / Ting Lan, Manasa Patnam, Frederik Toscani, Claire Li.
- Format:
- Book
- Government document
- Author/Creator:
- Lan, Ting.
- Series:
- IMF Working Papers; Working Paper ; No. 2026/003
- IMF Working Papers
- Language:
- English
- Physical Description:
- 1 online resource (30 pages)
- Place of Publication:
- Washington, D.C. : International Monetary Fund, 2026.
- Summary:
- This paper examines how productivity dynamics and, as a consequence, potential output, are affected by energy price shocks. We do this through the lens of a model of endogenous technical change where firms adjust their investment in non-energy productivity and energy productivity in reaction to the economic environment. Higher energy prices prompt a shift in investment from enhancing non-energy (capital and labor) productivity to improving energy efficiency. The resulting gains in energy efficiency act as an important macroeconomic buffer, but cannot fully offset the adverse input price effect and the transitional cost of shifting investment away from non-energy productivity. We thus find that the change in European energy prices following the 2022 shock reduces the level of euro area potential GDP by 0.8 percent by 2027. The impact on potential growth is temporary, and will have dissipated by that time. Energy efficiency itself is projected to rise by about three percent, offering a silver lining to the crisis. We estimate that the output effect would have been around two-thirds larger had energy efficiency not cushioned the impact of the price shock.
- Notes:
- Description based on print version record.
- ISBN:
- 979-82-290-3626-9
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