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Power Generation and the Business Cycle: The Impact of Delaying Investment

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Abstract

This article presents the hypothesis that exogenous shocks in the electricity market can affect the business cycle of the Chilean economy in the short and medium terms. The shocks are identified as the delays in power-generation investment that have characterized the sector in recent years. The delays are due to political decisions and the process of attaining environmental approvals by state agencies. A comparison of different scenarios reveals that after eight years, the country would lose the equivalent of one year of GDP growth, with a consequent reduction in private investment, domestic consumption, and job creation. This result highlights the importance of environmental and energy policy in reducing business cycle fluctuations.

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Paper provided by Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines in its series ILADES-Georgetown University Working Papers with number inv290.

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Length: 23 pages
Date of creation: Jul 2013
Date of revision:
Handle: RePEc:ila:ilades:inv290

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Keywords: Business Cycle; Electric Energy; Bayesian Econometrics; DSGE models;

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