Spillover effects of energy transition metals in Chile

Abstract

This paper examines the impact of spillover effects of energy transition metals in Chile. The study aims at identifying the causal relationships among these energy transition metals and other major assets like oil, gold, and bitcoin, and how they shape Chile’s economy, both pre-COVID-19 and during the first months of the pandemic. Our Structural Vector Autoregressive analysis is carried out with daily frequency data for two separate periods, the pre-COVID-19 analysis (the whole of 2018) and the COVID-19 analysis (Feb 2020 to end of 2020). Our results suggest that Chile has been highly responsive to renewable energy shocks during COVID-19, in concert with an increased responsiveness to traditional oil-driven shocks. This lends weight to the idea that traditional energies are still relevant and concomitant with energy transition, especially in a small open resource-oriented economy like Chile. In addition to that, bitcoin shocks seem to have contributed to Chile’s transition, likely as a result of bitcoin’s extensive use of energy and its potential to increase renewable energy capacity. Policywise, our findings call for a watchful eye on regulatory constraints, excessively high royalties, and the maintenance of stabilization funds to mitigate uncertainty, all of which can affect Chile’s competitive edge at an untimely hour.