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.
Keywords
Essentially, all models are wrong, but some are useful.
George E. P. Box
The views expressed herein are the personal views of the author and are not intended to reflect the views of Deutsche Bank. The author thanks Prof. Francesco Giavazzi, Prof. Carlo Ambrogio Favero and Prof. Vlasios Voudouris for their comments.
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Notes
- 1.
EU–Russia summit, Paris, October 30, 2000.
- 2.
I will express all the values in dollar unless otherwise stated.
- 3.
The proof of each step from now on is in Appendix.
References
Dornbusch R (1976) The theory of flexible exchange rate regimes and macroeconomic policy. Scand J Econ 78(2):255–275
European Commission (2000) Towards a European strategy for the security of energy supply. COM(2000)769. Brussels, Belgium
Kouri P (1983) Intertemporal balance of payments equilibrium and exchange rate determination. Banca d'Italia. Discussion papers on international economics and finance, Rome, Italy
Kouri P, de Macedo J (1978) Exchange rates and the international adjustment process. Brookings Pap Econ Act 1978(1):111–157
Krugman P (1980) Oil and the dollar. NBER working paper series, 554, Cambridge, MA
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© 2013 Springer-Verlag London
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Maio, C.D. (2013). The Macroeconomic Effects of Energy Purchases. In: Leal Filho, W., Voudouris, V. (eds) Global Energy Policy and Security. Lecture Notes in Energy, vol 16. Springer, London. https://doi.org/10.1007/978-1-4471-5286-6_7
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DOI: https://doi.org/10.1007/978-1-4471-5286-6_7
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