The macroeconomic effects of energy purchases

Abstract

Purpose: To assess whether the switch in energy source and/or the associated change in trade partners affect the Euro-Dollar exchange rate and how the countries react strategically, adjusting their energy policy. Approach: Dynamic partial equilibrium model. Findings: First, the effect of the energy purchases on the exchange rate dynamics ultimately depends on the preferences over assets and goods of the supplier countries. Second, the import preferences of the energy exporters are what determine the long-run impact of the oil and gas purchases. Therefore, when energy producers have different preferences, switching the supplier or the source can clearly alter the impact on the exchange rate. Value: An analysis of the strategic interaction on the energy markets under the assumption that all assets are not perfect substitutes. © Springer-Verlag London 2013.