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Does Oil Price Uncertainty Affect Energy Use?

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  • Gerard H. Kuper
  • Daan P. van Soest

Abstract

Theory predicts that the presence of fixed costs implies that the relationship between energy use and energy price changes is asymmetric, as the firmÕs output and investment decisions respond differently to energy price increases and decreases. The asymmetry is exacerbated if future energy prices are uncertain, but to date the empirical literature does not explicitly take uncertainty into account. The contribution of this paper is twofold. First, we develop a new measure of energy price uncertainty. Second, we apply this measure to explain energy use in fifteen OECD countries between 1978 and 1996. Our results support the theoretical prediction that energy price uncertainty affects the asymmetry and renders energy saving technologies less attractive.

Suggested Citation

  • Gerard H. Kuper & Daan P. van Soest, 2006. "Does Oil Price Uncertainty Affect Energy Use?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 55-78.
    • Handle: RePEc:aen:journl:2006v27-01-a03
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    Cited by:

    1. Duong T Le, 2015. "Ex-ante Determinants of Volatility in the Crude Oil Market," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 6(1), pages 1-13, January.
    2. Patricia Iyore Ajayi & Adedayo Emmanuel Longe & Oladayo Ayokunle Omitogun & Shehu Muhammad, 2019. "Oil Price Shocks and Energy Consumption in Nigeria," Business & Management Compass, University of Economics Varna, issue 4, pages 275-293.
    3. Yang, Ming & Blyth, William & Bradley, Richard & Bunn, Derek & Clarke, Charlie & Wilson, Tom, 2008. "Evaluating the power investment options with uncertainty in climate policy," Energy Economics, Elsevier, vol. 30(4), pages 1933-1950, July.
    4. Gülsüm Akarsu, 2017. "Analyzing the impact of oil price volatility on electricity demand: the case of Turkey," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 7(3), pages 371-388, December.
    5. Ali Arababadi & Stephan Leyer & Joachim Hansen & Reza Arababadi, 2021. "Characterizing the Theory of Spreading Electric Vehicles in Luxembourg," Sustainability, MDPI, vol. 13(16), pages 1-24, August.
    6. Slaibi, Ahmad & Chapman, Duane & Daouk, Hazem, 2005. "An Econometric Evaluation of A Geopolitical Theory of Oil Price Behavior," Working Papers 127131, Cornell University, Department of Applied Economics and Management.
    7. Yang, Ming & Nguyen, François & De T'Serclaes, Philippine & Buchner, Barbara, 2010. "Wind farm investment risks under uncertain CDM benefit in China," Energy Policy, Elsevier, vol. 38(3), pages 1436-1447, March.
    8. Huawei, Tian, 2022. "Does gross domestic product, inflation, total investment, and exchanges rate matter in natural resources commodity prices volatility," Resources Policy, Elsevier, vol. 79(C).
    9. Kasparian, Jérôme, 2009. "Contribution of crude oil price to households' budget: The weight of indirect energy use," Energy Policy, Elsevier, vol. 37(1), pages 111-114, January.
    10. Dobroschke, Stephan, 2012. "Energieeffizienzpotenziale und staatlicher Lenkungsbedarf," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 12-1, University of Cologne, FiFo Institute for Public Economics.
    11. Chi, Junwook, 2016. "Long- and short-run asymmetric responses of motor-vehicle travel to fuel price variations: New evidence from a nonlinear ARDL approach," Transport Policy, Elsevier, vol. 50(C), pages 126-134.
    12. Halova Wolfe, Marketa & Rosenman, Robert, 2014. "Bidirectional causality in oil and gas markets," Energy Economics, Elsevier, vol. 42(C), pages 325-331.
    13. Muhammad Jawad & Munazza Naz, 2019. "Pre and post effects of Brexit polling on United Kingdom economy: an econometrics analysis of transactional change," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(1), pages 247-267, January.
    14. Aaron D. Smallwood, 2022. "Inference in Misspecified GARCH‐M Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(2), pages 334-355, April.
    15. Dominik Kryzia & Michał Kopacz & Katarzyna Kryzia, 2020. "The Valuation of the Operational Flexibility of the Energy Investment Project Based on a Gas-Fired Power Plant," Energies, MDPI, vol. 13(7), pages 1-16, March.
    16. Apergis, Nicholas & Lau, Marco Chi Keung, 2015. "Structural breaks and electricity prices: Further evidence on the role of climate policy uncertainties in the Australian electricity market," Energy Economics, Elsevier, vol. 52(PA), pages 176-182.
    17. Gong, Xu & Lin, Boqiang, 2017. "Forecasting the good and bad uncertainties of crude oil prices using a HAR framework," Energy Economics, Elsevier, vol. 67(C), pages 315-327.
    18. Chiah, Mardy & Phan, Dinh Hoang Bach & Tran, Vuong Thao & Zhong, Angel, 2022. "Energy price uncertainty and the value premium," International Review of Financial Analysis, Elsevier, vol. 81(C).
    19. Jan Jacobs & Gerard Kuper & Daan van Soest, 2009. "On the effect of high energy prices on investment," Applied Economics, Taylor & Francis Journals, vol. 41(27), pages 3483-3490.

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    JEL classification:

    • F0 - International Economics - - General

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