The macroeconomic impact of the electricity price: lessons from Chile

Renato Agurto, Fernando Fuentes, Carlos García and Esteban Skoknic

Empirical Economics, 2021, vol. 60, issue 5, No 11, 2407-2428

Abstract: Abstract This article presents the hypothesis that exogenous shocks in the electricity market, through variations in prices that are independent of changes in oil prices, may affect the business cycle of the Chilean economy in the short and medium term. The results of our research confirm this hypothesis: shocks of different signs that modify investment in power generation—delays or new investment in renewable energies—have played an important role in the fluctuation of the business cycle. For example, the comparison of different scenarios reveals that after a few years, delays could have caused losses of around 6.0% of GDP growth, because the price of electricity would have been far from its equilibrium value for a long time. Therefore, without the strong investment in renewables, among other technologies, the delays would have materialized, resulting in relevant costs to the economy. These results have important policy implications. Chile has been a leader in Latin America in terms of electricity market reform since 1982. Therefore, it is essential to study possible changes in the Chilean electricity market, to the extent that it could lead other countries to question the benefits of implementing similar market reforms, especially if negative shocks in the electricity generation sector are not compensated by new investments.

Keywords: Business cycle; Electric energy; Bayesian estimation; Macroeconomics models (search for similar items in EconPapers)
JEL-codes: E32 Q43 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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DOI: 10.1007/s00181-020-01883-7

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