Commodity Price Shocks and Inflation-at-Risk in the Euro Area: Evidence from Quantile Factor Models

This thesis studies the role of commodity price shocks in shaping inflation-at-risk in the euro area. The central question is whether commodity market disturbances affect only average inflation dynamics or whether they transmit asymmetrically across the conditional distribution of future HICP inflation. To address this question, the thesis develops an empirical framework based on quantile methods and factor models. A principal component benchmark is first used to summarize common movements in commodity prices and to evaluate the limits of average-factor approaches. The core analysis then relies on Quantile Factor Models to extract lower-tail, median and upper-tail commodity factors, whose autoregressive innovations are used in Quantile Local Projections for euro-area HICP inflation. This allows the transmission of commodity shocks to be studied separately at different points of the inflation distribution. As a dynamic extension, the thesis also implements a Quantile Factor-Augmented VAR using a multi-country panel of HICP measures and aggregate euro-area macroeconomic controls. The objective is to provide evidence on whether upside inflation risk is mainly associated with broad commodity fluctuations or with extreme commodity-price pressure.