An Empirical Analysis of Macro-wide and Sectoral Responses to Brown Energy Price Shocks in EU Economies

Abstract

We build a Brown Energy Price Index (BEPI) for EU economies and sectors. The index is then incorporated in PVAR models to analyse the reaction to price shock, the impact on economic activity and the change in the energy mix. The panel dimension comes from the thirteen EU economies and it is declined across five economic sectors. At the macroeconomic level, a positive shock to BEPI triggers some substitution between brown and green energy. Since the substitution falls short of the needs, activity contracts; nonetheless, part of the energy substitution is maintained after the shock is absorbed. At the sector level, our results confirm the substitution effect and the adverse impact on activity. Moreover, the magnitude of the responses are shown to be correlated with the sectors brown energy intensity of production.

JEL Codes: C30, E30, Q40