Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322075 
Year of Publication: 
2025
Series/Report no.: 
ECB Working Paper No. 3052
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We propose a novel empirical structural inflation model that captures non-linear shock transmission using a Bayesian machine learning framework that combines VARs with non-linear structural factor models. Unlike traditional linear models, our approach allows for non-linear effects at all impulse response horizons. Identification is achieved via sign, zero, and magnitude restrictions within the factor model. Applying our method to euro area energy shocks, we find that inflation reacts disproportionately to large shocks, while small shocks trigger no significant response. These non-linearities are present along the pricing chain, more pronounced upstream for commodity and producer prices and gradually attenuating downstream for consumer prices. For policy makers, the finding that large shocks transmit differently implies that they may require a differentiated response.
Subjects: 
Inflation
non-linear model
machine learning
energy
euro area
JEL: 
E31
C32
C38
Q43
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-7230-7
Document Type: 
Working Paper

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