Does geopolitics trigger energy inflation in the European economic area? Evidence from a panel time-varying regression
International Journal of Energy Sector Management
ISSN: 1750-6220
Article publication date: 24 August 2023
Abstract
Purpose
This paper aims to examine the reaction of energy inflation to geopolitical risks in the European Economic Area between 1990 and 2015.
Design/methodology/approach
This study applies the nonparametric time-varying coefficient panel data model with fixed effects. In addition, to further reveal potential tail effects that may not have been captured by conditional mean-based regressions, the method of moments quantile regression was also used.
Findings
The findings of this study are as follows: first, as European countries get exposed to geopolitical tensions, it is expected that energy prices will surge. Second, the ability of geopolitical risk to trigger energy inflation in recent times is not as powerful as it used to be. Third, countries with a lower inflation rate, when exposed to geopolitical risks, experience smaller increases in energy inflation compared to countries with a higher inflation rate.
Research limitations/implications
The findings of this study lead us to the conclusion that transitioning from nonrenewable to renewable energy use is one channel through which the sampled countries can battle the energy inflation, which geopolitical risks trigger. A sound macroeconomic policy for inflation control is a complementary channel through which the same goal can be achieved.
Originality/value
Given the increasing level of energy inflation and geopolitical risks in the world today, this study is an attempt to reveal the time-varying characteristics of the relationship between these variables in European countries using a nonparametric time-varying coefficient panel data model and method of moments quantile regression with fixed effects.
Keywords
Acknowledgements
Declarations data availability statement: The data used and/or analyzed during the study are available with all the authors, and they are ready to make it available upon a reasonable request.
Competing interests: The authors declare that they have no known competing interests.
Funding: The authors received no funding for this research.
Citation
Olasehinde-Williams, G., Olanipekun, I. and Usman, O. (2023), "Does geopolitics trigger energy inflation in the European economic area? Evidence from a panel time-varying regression", International Journal of Energy Sector Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJESM-05-2023-0027
Publisher
:Emerald Publishing Limited
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