Gas‒electricity price transmission and the 2026 energy shock: evidence from Italy

This paper analyzes the transmission of the energy crisis of 2021–2026 to the Italian economy, focusing on natural gas prices in electricity price formation. Based on monthly data on TTF gas prices, Brent oil prices, Italian wholesale electricity price (PUN), inflation, industrial production, and electricity demand, the analysis uses baseline regressions, vector autoregressive (VAR) models, impulse response functions (IRFs), and Granger causality tests to analyze the dynamic propagation of energy shocks. The empirical data show that natural gas prices are the main price-driven determinants of wholesale electricity prices in Italy. A substantial and persistent pass-through emerges from TTF gas prices to the PUN; conversely, Brent oil prices turn out not to be statistically significant when gas market dynamics are properly taken into account as well. The VAR and IRF evidence also shows that gas price shocks produce instantaneous and longer-term effects on electricity prices. This provides evidence of a dynamic gas‒electricity transmission mechanism during the sample period. Granger causality studies also make it clear that electricity prices, in turn, affect inflation and industrial production: the electricity market serves as an avenue by which external energy shocks can propagate into both macroeconomic and economic levels. The results provide evidence of significant vulnerability in energy-dependent economies operating under marginal pricing systems heavily tied to natural gas during periods of energy-market stress. More specifically, the paper supports the literature on energy crises by demonstrating that the recent European energy shock appears to differ from traditional oil-oriented crises and is driven to a high extent by natural gas market instability and electricity price transmission modes.