Time varying causal relationship between renewable energy consumption, oil prices and economic activity: New evidence from the United States

This study examines the causal relationships between renewable energy consumption, oil prices, and economic activity in the United States from January 1986 to August 2020. It applies the novel time varying causality approach of Shi et al. (2018), which identifies and dates the changes in causal relationships. Our main findings indicate that the causal relationships between the variables are not stable over the period of analysis, except the relationship between economic growth and renewable energy consumption. Besides, the NBER recession periods tend to affect only the causal links between changes in WTI prices and economic growth. Regarding the direction of causal links, the results reveal: (i) the absence of causal link between economic growth and renewable energy consumption, which points to the presence of neutrality hypothesis in the US, (ii) changes in WTI prices cause economic growth in numerous subperiods, while the reverse direction is limited to the two last recession periods in the US economy (2008 financial crisis and COVID-19 pandemic), (iii) unidirectional causality from WTI to renewable energy consumption, in certain sub-periods. These findings have important implications for policy makers of the USA economy.