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Energy Prices Volatility and the United Kingdom: Evidence from a Dynamic Stochastic General Equilibrium Model

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Author
Aminu, Nasir
Date
2019-01-19
Acceptance date
2019-01-17
Type
Article
Publisher
Elsevier
ISSN
1873-6785
Metadata
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Abstract
This paper analyses the consequences and effects of volatile energy prices in the UK. The evidence provided are from an estimated DSGE model of energy. The model is applied on filtered data from 1981:Q1 to 2013:Q1 and evaluated by the indirect inference testing. In analysing the structural shocks, the study found higher volatility in energy prices shock during the Great Recession compared to the sample period. The high volatility of energy prices shock caused inflationary pressures in the economy. The study found energy prices shock amplified the Great Recession by significantly contributing to the fall in output. Thus, energy prices shock is an important driver of economic activity. However, given the shocks are stationary, energy prices shock is temporary. Therefore, all consequences of energy prices in the economy are short-term. By implication, when volatile energy prices create an output shortfall, monetary policy is the tool used to off-set short-term falls in output. We find results persists with robustness check. The findings justified why the DSGE model is a policymakers’ workhorse.
Journal/conference proceeding
Energy;
Citation
Aminu, N. (2019) 'Energy Prices Volatility and the United Kingdom: Evidence from a Dynamic Stochastic General Equilibrium Model', Energy, 172(1), pp.487-497. DOI: 10.1016/j.energy.2019.01.092.
URI
http://hdl.handle.net/10369/10321
DOI
https://doi.org/10.1016/j.energy.2019.01.092
Description
Article published in Energy on 19 January 2019 (online), available at: https://doi.org/10.1016/j.energy.2019.01.092.
Rights
https://creativecommons.org/licenses/by-nc-nd/4.0/
Sponsorship
Cardiff Metropolitan University (Grant ID: Cardiff Metropolian (Internal))
Collections
  • Welsh Centre for Business and Management Research [325]

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