How Energy Sector Reacted to COVID-19 Pandemic? Empirical Evidence from an Emerging Market Economy

The European Union is facing the highest natural gas prices in 15 years, owing largely to an upward trend in electricity prices, which is also on an uphill curve. However, the rise in electricity and natural gas prices is a widespread phenomenon that is being felt not only in Europe but also globally, as economic activity resumes and energy consumption returns to prepandemic levels. Consequently, this paper investigates how COVID-19 influenced the Romanian energy market. To accomplish our goal, we used daily data for variables and market indices that characterize COVID-19 and the energy market from July 1 to December 21, 2021. The results of the GARCH (1, 1) model estimation show that the major performer in Romania's energy allocation and supply market had the highest conditional variance. In addition, the ARDL model was chosen because of the variable integration mix (order 0 and 1), as well as the VAR and the Granger causality framework. The empirical results of ARDL models provide the first conclusion of the analysis, indicating that the number of short-term connections was greater than long-term connections, which is also explained by the presence of short episodes of high volatility recorded in the investigated time interval. Another conclusion drawn from this study is that COVID-19 cases registered in Europe and around the world have made a significant contribution to explaining the evolution of the energy market, owing to the large number of cases registered in these regions and the level of contagion transmitted from these markets to the energy market. Furthermore, based on the Granger causality test results, only one-way causal relationships were identified from the variables that capture the evolution of the COVID-9 pandemic to the yields of Romanian energy companies. The novelty of this article is the examination of the impact of COVID-19 on the energy market throughout the fourth wave of coronavirus using the GARCH framework, the ARDL model, which allows for the capture of both short- and long-term reactions, the variance decomposition, and the Granger causality test. Because of the ongoing changes in the pandemic's evolution, additional research on this topic is undoubtedly on the horizon in the near future.