The frequency domain causality analysis between energy consumption and income in the United States

Abstract

We investigated Granger-causality in the frequency domain between primary energy consumption/electricity consumption and GDP for the US by employing approach of Lemmens et al. (2008) and covering the period of January, 1973 to December, 2008. We found that causal and reverse causal relations between primary energy consumption and GDP and electricity consumption and GDP vary across frequencies. Our unique contribution in the existing literature lies in decomposing the causality on the basis of time horizons and demonstrating bidirectional the short-run, the medium-run and the long-run causality between GDP and primary energy consumption/electricity consumption and thus providing evidence for the feedback hypothesis. These results have important implications for the US for planning of the short, the medium and the long run energy and economic growth related policies.