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Nexus between U.S Energy Sources and Economic Activity: Time-Frequency and Bootstrap Rolling Window Causality Analysis

Shahbaz, Muhammad and Hussain Shahzad, Syed Jawad and Jammazi, Rania (2016): Nexus between U.S Energy Sources and Economic Activity: Time-Frequency and Bootstrap Rolling Window Causality Analysis.

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Abstract

This paper explores the relationship between U.S economic activity and renewable energy sources namely hydroelectric power, geothermal energy, wood energy, waste energy, biofuel, biomass energy, and total renewable energy. Monthly data for the period January 1981 to March 2015 is used to depict the comovements between the variables through Wavelet Squared Coherence (WTC) and Multiple Wavelet Coherence (MWCC) approaches. Maximal overlap wavelet correlation and cross-correlation measures, analogous to WTC and MWCC, show strong positive comovement in long-run. The causal linkage between economic activity and renewable energy sources is examined through bootstrap rolling window causality. The analysis reveals the significant reciprocal effects between the economic activity and energy use during the periods of extreme events. Overall, findings indicate that renewable energy sources play an important role in stimulating economic activity. This shows that present study has important implications for US energy policy authorities.

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