Author(s)

C. Magazzino

Abstract

This study aims to explore the relationship among energy consumption, real income, financial development, and oil prices in Italy over the period 1960–2014. The results of unit root and stationarity tests show that the variables are non-stationary at levels, but stationary in first-differences form, or I(1). The ARDL bounds F‐test reveals an evidence of a long-run relationship among the four variables at 1% significance level. The results show that an increase in real GDP and oil prices have a significant effect on energy consumption in the long-run. The coefficients of estimated ECT are also negative and statistically significant. In addition, the paper explores the causal relationship between the variables by using a VAR framework, with Toda and Yamamoto but also Granger causality tests, within both multivariate and bivariate systems. The findings indicate that energy consumption is affected by real GDP.

Keywords

financial development, energy consumption, GDP, ARDL, Italy, JEL classification: B22, C32, N54, Q43