Narrow Results

This study focuses on the unequal relationship between energy consumption and its determinants. Past studies have not examined how minor and substantial currency value changes affect energy consumption in the organization for economic cooperation and development (OECD) countries. This study compares the effects of modest and significant exchange rate (ER) changes on energy demand (ED) in OECD countries, which include Greece, Belgium, Ireland, Denmark, Portugal, Norway and Italy. Our work adds to the literature by distinguishing the effect of small to significant changes in currency fluctuations. We do this with a sophisticated model, an updated multiple threshold nonlinear autoregressive distributed lag (MTNARDL). Next, we compare the model’s outcomes to conventional nonlinear autoregressive distributed lag (NARDL) and autoregressive distributed lag (ARDL) models. According to NARDL and ARDL estimates, co-integration is present in the context of Belgium. However, the MTNARDL model division of series suggests cointegration in all sample countries. It implies that this model is superior to previous ones. We conclude with policy recommendations based on the results of our inquiry.

The effect of economic policy uncertainty (EPU) on other macroeconomic and financial variables has been the subject of prior research investigations. However, a dearth of work explicitly examines the connection between EPU exchange rate changes. By utilizing both nonlinear ARDL (NARDL) and multiple threshold NARDL (MTNARDL) models, we add to the body of literature by analyzing the nonlinear impact of EPU on exchange rates. The MTNARDL model, which distinguishes between the impacts of very small changes in the EPU from very large changes in the EPU on the exchange rate, is an expanded version of the NARDL model. The MTNARDL results confirm an asymmetric effect of EPU on exchange rates in the long run for all sample countries, contrary to the NARDL estimates, which show that EPU has an asymmetric effect in Brazil, Turkey, and China only. Similarly, only one country is supported by NARDL estimates for the short-run asymmetric effect, but MTNARDL estimates support the effect in five countries. Therefore, in our study, the MTNARDL model aids the prior literature in examining the more comprehensive impact of EPU on the exchange rates.