MSc Thesis Defence - Yiyang Chen (DSAS) - No Public Lecture

Title: Renewable-energy resources, economic growth and their causal link

Abstract: This thesis examines the presence and strength of predictive causal relationship between renewable energy prices and economic growth. We look for evidence by investigating the cases of Norway, New Zealand, and Canada's two provinces of Alberta and Ontario. The usual vector autoregressive model (VAR) and its various improved versions still assume constant parameters over time. We devise a Markov-switching VAR (MS-VAR) model in order to accommodate the observed time-dependent causal relation changes. Our proposed modelling approach is induced by the hidden Markov model methodologies in terms of an online parameter estimation through recursive filtering. The parameters of the MS-VAR model are governed by a hidden Markov chain, which in turn allows causal relationship to vary amongst different economic regimes. A unidirectional causal link, going from economic growth to the prices of renewable energy in New Zealand, Alberta, and Ontario, is demonstrated by our empirical findings. In particular, the causality emerges in the cases of New Zealand and Ontario during periods of high economic growth whilst it appears in the case of Alberta during periods of low economic growth.