An Energy-Based Macroeconomic Growth Model and the Impact of the Russo-Ukrainian Conflict

70 Pages Posted: 30 Sep 2022 Last revised: 27 Dec 2022

See all articles by Etienne de Malherbe

Etienne de Malherbe

Heracles Capital Ltd

Didier Darcet

Gavekal Intelligence Software (Gavekal-IS)

Date Written: September 28, 2022

Abstract

The note introduces a simple GDP accounting model, whereby the total GDP at a point in time is the sum of the various GDP sectors contributing to the production of added value. Among these sectors, the energy contribution takes a special place. Energy is viewed as the primary contributing one and the other sectors are treated as secondary, whose production derives from and are dependent on the energy production. The link between energy and the secondary production is established in a simple yet realistic linear-exponential manner, allowing for energy efficiency to be taken care of. In particular, an energy efficiency rate is introduced and translates the ability for example to output more secondary added value with as much primary energy input. The model can thereby be used to measure the sensitivity of the GDP growth to changes in the primary energy prices or volumes.

In the context of the 2022 Russo-Ukrainian conflict, the model is able to provide estimates of the potential impacts of energy price spikes or volume shortages on the GDP output, which is a particularly salient issue for the economy of the European Union and, specifically, of Germany, France or Italy. The GDP model can also be used under a Value-at- Risk framework, that is, in a way that allows assigning confidence levels to scenario outcomes. The economy of the European Union having the highest exposure to recession because of primary energy price spikes and volume shortages is Italy.

Keywords: Production, Growth, Energy, Energy Efficiency, Energy Price Index, Ex-Energy Price Index

JEL Classification: E23, E31, O13, O41, Q43

Suggested Citation

de Malherbe, Etienne and Darcet, Didier, An Energy-Based Macroeconomic Growth Model and the Impact of the Russo-Ukrainian Conflict (September 28, 2022). Available at SSRN: https://ssrn.com/abstract=4232870 or http://dx.doi.org/10.2139/ssrn.4232870

Etienne De Malherbe (Contact Author)

Heracles Capital Ltd ( email )

London

Didier Darcet

Gavekal Intelligence Software (Gavekal-IS) ( email )

27 Bis rue Copernic
Paris, 75116
France

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