Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/331612 
Authors: 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 12146
Publisher: 
Munich Society for the Promotion of Economic Research - CESifo GmbH, Munich
Abstract: 
This paper identifies electricity supply shocks by exploiting the fact that variations in wind speed at turbine locations are exogenous with respect to macroeconomic outcomes and drive electricity prices in European wholesale markets inframarginally. Instrumenting electricity price changes with these wind supply shocks, I find that higher electricity prices raise inflation and reduce electricity use as expected, but generate surprising effects on economic activity. Unemployment rises, but industrial production also rises over time, and the effect on GDP is negligible. As these effects differ markedly from the impact of oil price shocks, they suggest that as economies shift from fossil fuels to renewable electricity, business cycle dynamics may persistently change.
Subjects: 
business cycle
prices
energy supply
energy shocks
wind energy
JEL: 
E31
E32
Q42
Q43
Document Type: 
Working Paper
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