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

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posted on 15.02.2022, 16:32 by Nasir Aminu
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.

History

Published in

Energy

Publisher

Elsevier

Version

AM (Accepted Manuscript)

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

Print ISSN

0360-5442

Cardiff Met Affiliation

  • Cardiff School of Management

Cardiff Met Authors

Nasir Aminu

Cardiff Met Research Centre/Group

  • Welsh Centre for Business and Management Research

Copyright Holder

© The Publisher

Language

en

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