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Causality Between Energy and Output in the Long-Run

Stern, David LU and Enflo, Kerstin LU (2013) In Lund Papers in Economic History. General Issues
Abstract
Though there is a very large literature examining whether energy use Granger causes economic output or vice versa this literature is fairly inconclusive. Almost all existing studies use relatively short time series or panels with a relatively small time dimension. Additionally, many recent papers continue to use what seem to be misspecified models. We apply Granger causality and cointegration techniques to a Swedish time series data set on energy and economic growth spanning 150 years to test whether increases in energy use and energy quality have driven economic growth. We show that these techniques are very sensitive to variable definition, choice of additional variables in the model, and sample periods. All of the following appear to... (More)
Though there is a very large literature examining whether energy use Granger causes economic output or vice versa this literature is fairly inconclusive. Almost all existing studies use relatively short time series or panels with a relatively small time dimension. Additionally, many recent papers continue to use what seem to be misspecified models. We apply Granger causality and cointegration techniques to a Swedish time series data set on energy and economic growth spanning 150 years to test whether increases in energy use and energy quality have driven economic growth. We show that these techniques are very sensitive to variable definition, choice of additional variables in the model, and sample periods. All of the following appear to make a finding that energy causes growth more likely: using multivariate models, defining variables to better reflect their theoretical definition, using larger samples, and including appropriate structural breaks. However, it is also possible that the relationship between energy and growth has changed over time and that results from recent smaller samples reflect this. Energy prices have a significant causal impact on both energy use and output. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Working Paper
publication status
published
subject
keywords
time series, causality, cointegration, Granger causality, macroeconomics, Energy
in
Lund Papers in Economic History. General Issues
issue
126
pages
43 pages
publisher
Department of Economic History, Lund University
external identifiers
  • Scopus:84878944640
language
English
LU publication?
yes
id
2d338661-c5ca-41ca-b99a-68b1c639a905 (old id 7869092)
date added to LUP
2015-09-17 15:02:00
date last changed
2016-10-13 04:42:28
@misc{2d338661-c5ca-41ca-b99a-68b1c639a905,
  abstract     = {Though there is a very large literature examining whether energy use Granger causes economic output or vice versa this literature is fairly inconclusive. Almost all existing studies use relatively short time series or panels with a relatively small time dimension. Additionally, many recent papers continue to use what seem to be misspecified models. We apply Granger causality and cointegration techniques to a Swedish time series data set on energy and economic growth spanning 150 years to test whether increases in energy use and energy quality have driven economic growth. We show that these techniques are very sensitive to variable definition, choice of additional variables in the model, and sample periods. All of the following appear to make a finding that energy causes growth more likely: using multivariate models, defining variables to better reflect their theoretical definition, using larger samples, and including appropriate structural breaks. However, it is also possible that the relationship between energy and growth has changed over time and that results from recent smaller samples reflect this. Energy prices have a significant causal impact on both energy use and output.},
  author       = {Stern, David and Enflo, Kerstin},
  keyword      = {time series,causality,cointegration,Granger causality,macroeconomics,Energy},
  language     = {eng},
  number       = {126},
  pages        = {43},
  publisher    = {ARRAY(0x9cf83b0)},
  series       = {Lund Papers in Economic History. General Issues},
  title        = {Causality Between Energy and Output in the Long-Run},
  year         = {2013},
}