Monetary and energy policy interlinkages : the case of renewable energy in the US

Abstract

The rising threats of environmental deterioration propel renewable energy (RE) adoption. However, the proportion of RE compared to non-renewable energy (NRE) is still limited due to various socioeconomic factors. Investigating the drivers of renewable energy consumption (REC) remains the field's main focus, which interestingly disregards the investigation of monetary policy (MP) as a driver of REC. So, we probe whether MP affects REC in the US. The findings document that expansionary monetary policy (EMP) promotes REC during the long-run (LR) and short-run (SR), and vice versa. Further, the impact of MP is relatively strong in the SR. Based on the findings, we propose to introduce/adopt an EMP that will escalate REC. Moreover, during the episodes of contractionary monetary policy (CMP), special incentives (e.g., tax cuts on renewable energy products, etc.) should be provided to offset the detrimental impact of CMP. Finally, the role of MP in the choice of RE as the preferred energy type directs energy policymakers not to underrate policy instruments such as interest rates in anticipating future changes and reacting accordingly.