Rare Disaster and Renewable Energy in the USA: New Insights from Wavelet Coherence and Rolling-Window Analysis

Abstract

The increasing trend of economic and political crises in different parts of the world has made global economies highly vulnerable because of having globally as well as regionally integrated economic systems. In such an environment, switching to alternative energy products, such as renewable energy production, may be devastating. Therefore, the aim of this paper is to provide novel insights for the relationship between rare disaster risks and renewable energy production (REN) of the USA by utilizing the time series monthly data from 1973 to 2016. Using time-varying continuous wavelet power spectrum, the wavelet coherence, and the modified bootstrap rolling-window analysis, the results reveal significant linkages between all the categories of rare disaster risks and renewable energy production. Rare disaster risks and REN are linked with each other, and both the variables have time-varying cyclic and anti-cyclic effects on each other with robust and significant predictability from rare disasters to REN. These findings have novel implications for many stakeholders. For instance, producers of energy may safely switch to renewable energy production since disasters are found to have potential to leave cyclic effect on renewable energy at most.