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How Do Oil Shocks Impact Energy Consumption? A Disaggregated Analysis for the U.S.

Abstract:
This paper investigates the interaction between energy consumption and oil shocks in the U.S. from 1974 to 2018 using monthly data. Its contributions rely on the double disaggregation of energy consumption and oil shocks in a time-varying context. Oil shocks are disaggregated into oil supply, oil demand and aggregated demand shocks following the method of Kilian (2009). Energy consumption is disaggregated according to the production source in distinguishing between renewable and non-renewable energy consumption (hydropower, geothermal, wood, waste, coal, natural gas and petroleum). The impulse response function results show that renewable energy consumption responds the most to aggregate demand and oil supply shocks while for non-renewable energy consumption, it is oil demand shocks. The dynamic connectedness results show that oil supply and demand shocks spillover the most to hydropower consumption while aggregate demand shocks spillover the less. However, these relationships change over time and recommend the flexibility of energy policies.

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Keywords: Disaggregated oil shocks, Disaggregated energy consumption, SVAR, Dynamic connectedness, U.S.

DOI: 10.5547/01956574.40.SI1.thoa

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Published in Volume 40, The New Era of Energy Transition of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.