Energy Shocks and the Demand for Energy

Abstract

This paper discusses developments in energy consumption and oil markets since the early 1970s, highlighting the fall in energy and oil consumption per unit of output and the accompanying reduction in industrialised countries' exposure and vulnerability to energy shocks. In an attempt to analyse the determinants of aggregate output, a very simple model is subsequently presented to discuss the major transmission channels of energy price shocks and the related risk of disturbances to long-term equilibrium growth. The focus is then turned on investment and the capital stock and their role in the determination of energy demand. Energy demand equations are empirically derived for seven major countries, distinguishing in each case between demand for energy in industry, transportation and the commercial and residential sectors.