The Nexus Between Energy Demand and Currency Valuation: Evidence from Selected OECD Countries

Abstract

This study focuses on the unequal relationship between energy consumption and its determinants. Past studies have not examined how minor and substantial currency value changes affect energy consumption in the organization for economic cooperation and development (OECD) countries. This study compares the effects of modest and significant exchange rate (ER) changes on energy demand (ED) in OECD countries, which include Greece, Belgium, Ireland, Denmark, Portugal, Norway and Italy. Our work adds to the literature by distinguishing the effect of small to significant changes in currency fluctuations. We do this with a sophisticated model, an updated multiple threshold nonlinear autoregressive distributed lag (MTNARDL). Next, we compare the model’s outcomes to conventional nonlinear autoregressive distributed lag (NARDL) and autoregressive distributed lag (ARDL) models. According to NARDL and ARDL estimates, co-integration is present in the context of Belgium. However, the MTNARDL model division of series suggests cointegration in all sample countries. It implies that this model is superior to previous ones. We conclude with policy recommendations based on the results of our inquiry.