Solar events and the US energy sector: a novel sectoral spillover GVAR approach introducing indirect GIRFs (IGIRF)

Abstract

Based on what we know today, there is a strong linkage between solar activity and the energy sector. In this work, we study the linkage between extreme solar events and the US energy sector, utilizing a sectoral supply chain dataset that spans the period 1998–2014. To do so, we propose a novel methodological approach by linking all the sectors of the economy’s supply chain through a network-theoretic production-based framework. We estimate the network system using a global vector autoregressive model that incorporates dominant entities. Additionally, to capture the indirect spillover impact of extreme solar events on the rest of the sectors in the US economy, we develop, for the first time in the literature, the indirect global impulse response functions. We find that solar events affect directly the energy sector and, indirectly, most of the other sectors of the US economy. More precisely, solar phenomena indirectly provoke positive and significant responses in manufacturing, transportation, information and communication, finance and insurance, real estate, and business activities, through the energy sector. Conversely, agriculture, forestry, fishing, and mining sectors exhibit negative and significant responses. Construction, accommodation and food service activities, and wholesale and retail trade sectors do not show any significant response. These results give credence to the impact of solar events on the US sectoral economy, directly and indirectly, through the proposed IGIRFs.