Historical energy price shocks and their changing effects on the economy

The purpose of this paper is to identify the changes in the impact of energy shocks on economic activity � with an interest in assessing if an economy�s vulnerability and resilience to shocks improved with economic development. Using data on the United Kingdom over the last three hundred years, the paper identifies supply, aggregate demand and residual shocks to energy process and estimates their changing influence on energy prices and GDP. The results suggest that the economy became more vulnerable to supply shocks with its increasing dependence on coal, and less vulnerable with its partial transition to oil. However, the transition from exporting coal to importing oil increased the negative impacts of demand shocks. More generally, the results indicate that vulnerability and resilience to shocks did not progress systematically as the economy developed. Instead, the changes in vulnerability and resilience depended greatly on the circumstances related to the demand for and supply of energy sources.