Abstract
ABSTRACT This paper focuses on the impact of oil, natural gas and coal price shocks on the Spanish business cycle from 1969 to 2013. It uses Bayesian procedures to estimate a Dynamic Stochastic General Equilibrium (DSGE) model for a small open economy. The paper shows that natural gas and coal shocks are relevant sources of macroeconomic disruption in addition to oil price shocks. The three fossil fuel prices have an impact on the economic activity and explain the evolution of the energy mix. However, we find that oil price shocks have a significantly larger impact on economic volatility. Finally, we assess the impact of hydrocarbon price shocks on carbon emissions given that different price shocks result in a different fossil fuel mix and, thus, in different CO2 emissions.
Highlights
Since the 70s, abrupt shifts in oil prices and their impact on economic activity are at the core of economic analysis
Fossil fuel prices are strongly correlated and tend to move in parallel, suggesting that hydrocarbon prices respond to the same perturbations or shocks and affect economic activity simultaneously
A sharp shift in oil prices is accompanied by a sharp shift in natural gas and coal prices
Summary
Oil currently represents around 1/3 of the fossil fuel energy mix at a global level. Natural gas and coal are as relevant as oil from an energy perspective. The potential macroeconomic impacts of coal and natural gas price shocks have not been explored.
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