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The macroeconomic impact of the electricity price: lessons from Chile

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  • Renato Agurto
  • Fernando Fuentes
  • Carlos J. García
  • Esteban Skoknic

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.

Suggested Citation

  • Renato Agurto & Fernando Fuentes & Carlos J. García & Esteban Skoknic, 2021. "The macroeconomic impact of the electricity price: lessons from Chile," Empirical Economics, Springer, vol. 60(5), pages 2407-2428, May.
    • Handle: RePEc:spr:empeco:v:60:y:2021:i:5:d:10.1007_s00181-020-01883-7
    DOI: 10.1007/s00181-020-01883-7
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    Cited by:

    1. Fernando Fuentes & Pablo Serra, 2022. "Chilean Electric Transmission Regulation: From a Merchant Approach to Central Planning," Energies, MDPI, vol. 15(12), pages 1-15, June.
    2. Štefan Bojnec, 2023. "Electricity Markets, Electricity Prices and Green Energy Transition," Energies, MDPI, vol. 16(2), pages 1-4, January.

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    More about this item

    Keywords

    Business cycle; Electric energy; Bayesian estimation; Macroeconomics models;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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