Macroeconomic Impact of the Energy Transition

Garcia Silva, Pablo and Gutierrez Schweitzer, Maria de los Angeles and Medina, Juan Pablo (2025): Macroeconomic Impact of the Energy Transition.

Abstract

We examine the macroeconomic effects of the energy transition, focusing on the impact of oil prices on GDP, productivity and inflation. We find that energy dependence on fossil fuels increases vulnerability to oil price shocks, negatively affecting Total Factor Productivity (TFP). Using the Solow decomposition and including energy as part of the capital stock, we find two key effects: The Price and Scale Effect, in which higher energy prices increase production costs and reduce TFP; and The Recomposition Effect, in which greater use of domestic renewables boosts TFP by reducing reliance on non-renewable imports. Our findings for Chile between 2001 and 2019 the TFP adjustment for energy factors provides a complementary and enriched view of productivity, especially in periods or contexts with high volatility in energy consumption or prices. Finally, using a New-Keynesian DSGE model calibrated for Chile, we examine the macroeconomic consequences of the energy transition. A counterfactual scenario shows that, without diversification of the energy matrix, the economic impact of higher oil prices would have been more severe, with larger GDP declines, higher inflation, tighter monetary policy, and a steeper fall in TFP, highlighting the benefits of Chile's shift to a more renewable energy matrix.

• Item Type: MPRA Paper
• Language: English
• Keywords: DSGE Model, Aggregate Production Function, Monetary Policy, Environment and Growth, Energy Shocks
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C54 - Quantitative Policy Modeling; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E23 - Production; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O44 - Environment and Growth; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

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