Electronic Thesis and Dissertation Repository

Thesis Format

Monograph

Degree

Master of Science

Program

Statistics and Actuarial Sciences

Supervisor

Mamon, Rogemar

Abstract

This thesis examines the presence and strength of predictive causal relationship between re-newable energy prices and economic growth. We look for evidence by investigating the cases of Norway, New Zealand, and Canada’s two provinces of Alberta and Ontario. The usual vectorautoregressive model (VAR) and its various improved versions still assume constant parametersover time. We devise a Markov-switching VAR (MS-VAR) model in order to accommodate the observed time-dependent causal relation changes. Our proposed modelling approach is induced by the hidden Markov model methodologies in terms of an online parameter estimationthrough recursive filtering. The parameters of the MS-VAR model are governed by a hidden Markov chain, which in turn allows causal relationship to vary amongst different economic regimes. A unidirectional causal link, going from economic growth to the prices of renewable energy in New Zealand, Alberta, and Ontario, is demonstrated by our empirical findings. In particular, the causality emerges in the cases of New Zealand and Ontario during periods of high economic growth whilst it appears in the case of Alberta during periods of low economic growth.

Summary for Lay Audience

The importance of energy is underscored by its continuing demand to power up economic activities, enable technology performance and meet other energy-dependent needs of the population’s households. Non-renewable-energy sources are in limited supply as it would take a considerably long time for them to be replenished. As a consequence, many developed, emerging and transitioning economies have undergone a relatively rapid shift of tapping renewable-energy-source alternatives. With a nation’s competitiveness and prosperity go hand in hand with sustainable economic growth, this thesis investigates the causal relationship between renewable-energy prices and economic growth in Norway, New Zealand, and Canada’s two provinces of Alberta and Ontario. Our results show that economic growth brings more renewable-energy investments that strengthen renewable-energy technologies, eventually lowering renewable-energy prices. Thus, policy makers could introduce incentives that will attractmore renewable-energy investments. Although the impact of renewable-energy prices to economic growth is not seen within the examined data sets, policies supporting renewable energy may help in achieving a stable energy sector as fossil-based fuels, with considerable price risk, are gradually phased out.

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