Time-Varying and Asymmetric Relationship between Energy Use and Macroeconomic Activity

Abstract

In this paper, we analyze the dynamic interactions among energy use, output, capital stock and employment for the USA. Our results suggest that these interactions are time-varying and show asymmetries in terms of the one variable's responses of big versus small and positive versus negative shocks to another variable. In particular, we find that negative energy shocks have greater impact on macroeconomic variables than positive shocks. Furthermore, small energy shocks have greater effects than big shocks. Our results also suggest that the shocks to production factors reduce energy use, implying that energy and the other factors of production are substitutes rather than compliments. These results have clear policy implications. Namely, aggressive energy saving policies might be more politically viable. In addition, the policies promoting more efficient and energy-saving capital and production technologies could help reducing energy use.