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Causal relationship between energy consumption (EC) and GDP: A Markov-switching (MS) causality

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  • Fallahi, Firouz

Abstract

This paper re-examines the causal relationship between energy use and Gross Domestic Product (GDP) in the United States for the period 1960–2005. To that end, we use Markov-switching vector autoregressive (MS-VAR) models, rather than vector autoregressive (VAR) models, which allows for regime shifts. These models are capable of detecting changes in the relationship between variables; in addition, the coefficients of the model are time dependent and they depend on the states of the variables. Therefore, in contrast to VAR and vector error correction models (VECM), which assume a stable relationship, the relationship between the variables could be different in the separate regimes.

Suggested Citation

  • Fallahi, Firouz, 2011. "Causal relationship between energy consumption (EC) and GDP: A Markov-switching (MS) causality," Energy, Elsevier, vol. 36(7), pages 4165-4170.
    • Handle: RePEc:eee:energy:v:36:y:2011:i:7:p:4165-4170
    DOI: 10.1016/j.energy.2011.04.027
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