The Relationship Between Exchange Rate and Renewable Energy Consumption in EU Economies: A Panel Bootstrap Causality Analysis

In addition to economic issues such as fluctuations in energy costs and exchange rate volatility, environmental problems such as global warming and climate change have recently come to the fore. One of the most popular policy proposals that can be implemented to address these problems is to increase the use of renewable energy resources. Within this context, the present study aims to investigate the interaction between renewable energy consumption and exchange rates. Furthermore, the analysis incorporates key economic determinants of exchange rates, namely the inflation rate and gross domestic product (GDP). This study aims to analyze the causal relationships between the exchange rate, renewable energy, inflation rate, and GDP in fifteen EU countries over the period 1995–2020, using the Panel Bootstrap Causality Analysis developed by Kónya (2006). The empirical findings reveal a bidirectional Granger causality between renewable energy consumption and exchange rates at the panel level for the selected EU countries. Additionally, the results indicate a unidirectional Granger causality from GDP to exchange rates, while no causal relationship is found between inflation and exchange rates. At the individual country level, the direction and significance of causality relationships vary, reflecting country-specific dynamics. These results suggest that the green transformation initiatives pursued by EU countries—particularly under the European Green Deal and the REPowerEU plan—may also contribute to enhancing exchange rate stability through increased reliance on renewable energy.