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Is There Really Granger Causality Between Energy Use and Output?

Abstract:
We carry out a meta-analysis of the very large literature on testing for Granger causality between energy use and economic output to determine if there is a genuine effect in this literature or whether the large number of apparently significant results is due to publication or misspecification bias. Our model extends the standard meta-regression model for detecting genuine effects in the presence of publication biases using the statistical power trace by controlling for the tendency to over-fit vector autoregression models in small samples. Granger causality tests in these over-fitted models have inflated type I errors. We cannot find a genuine causal effect in the literature as a whole. However, there is a robust genuine effect from output to energy use when energy prices are controlled for.

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Energy Specializations: Energy and the Economy; Energy and the Economy –Economic Growth and Energy Demand; Energy Modeling; Energy and the Economy – Other

JEL Codes:
Q43 - Energy and the Macroeconomy
O13 - Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
C54 - Quantitative Policy Modeling
Q49 - Energy: Other

Keywords: Meta-analysis, Granger causality, Energy, Economic growth

DOI: 10.5547/01956574.35.4.5

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Published in Volume 35, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.