Cuddington, John and Dagher, Leila
(2013):
*Estimating Short and Long-Run Demand Elasticities: A Primer with Energy-Sector Applications.*
Published in: Energy Journal
, Vol. 36,
(2014): pp. 185-209.

Preview |
PDF
MPRA_paper_116122.pdf Download (601kB) | Preview |

## Abstract

Many empirical exercises estimating demand functions, whether in energy economics or other fields, are concerned with estimating dynamic effects of price and income changes over time. This paper first reviews a number of commonly used dynamic demand specifications to highlight the implausible a priori restrictions that they place on short and long-run elasticities. Such problems are easily avoided by adopting a general-to-specific modeling methodology. Second, it discusses functional forms and estimation issues for getting point estimates and associated standard errors for both short and long-run elasticities – key information that is missing from many published studies. Third, our proposed approach is illustrated using a dataset on Minnesota residential electricity demand.

Item Type: | MPRA Paper |
---|---|

Original Title: | Estimating Short and Long-Run Demand Elasticities: A Primer with Energy-Sector Applications |

Language: | English |

Keywords: | SR elasticity; LR elasticity; demand function; ADL |

Subjects: | C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q41 - Demand and Supply ; Prices |

Item ID: | 116122 |

Depositing User: | Dr Leila Dagher |

Date Deposited: | 25 Jan 2023 14:27 |

Last Modified: | 25 Jan 2023 14:27 |

References: | Alberini, A., Gans, W., and Velez-Lopez, D. (2011). “Residential Consumption of Gas and Electricity in the U.S.: The Role of Prices and Income.” Energy Economics 33: 870-881. Arsenault, E., J.T. Bernard, C.W. Carr, and E. Genest-Laplante (1995). “A Total Energy Demand Model of Québec.” Energy Economics 17(2): 163-171. Baltagi, B. H. (2008). Econometrics, 4th edition. Heidelberg: Springer-Verlag. Baltagi, B. H. (2008). Econometric Analysis of Panel Data, 4th edition. Chichester: John Wiley and Sons. Baughman, M. L. and P.L. Joskow (1976). “Energy Consumption and Fuel Choice by Residential and Commercial Consumers in the United States.” Energy Systems and Policy 1(4): 305-323. Balestra, P. (1967). The Demand for Natural Gas in the United States. Amsterdam: North Holland Publishing Co. Bernard, J. T., Bolduc, D, and Yameogo, N. D. (2011). “A Pseudo-panel Data Model of Household Electricity Demand.” Resource and Energy Economics 33: 315-325. Bohi, D. R. (1981). Analyzing Demand Behavior. Baltimore, MD: Johns Hopkins University. Published for Resources for the Future. Chan, H. L. and S. K. Lee (1997). “Modeling and Forecasting the Demand for Coal in China.” Energy Economics 19: 271-287. Chang, H. S. and Y. Hsing (1991). “The Demand for Residential Electricity: New Evidence on Time-Varying Elasticities.” Applied Economics 23: 1251-1256. Charemza, W. and D. Deadman (1997). New Directions in Econometric Practice, 2nd Edition. UK: Edward Elgar Publishing. Chern, W. S. and R.E. Just (1980). “Regional Analysis of Electricity Demand Growth.” Energy 5: 35-46. Cuthbertson, K., S. Hall, and M. Taylor (1992). Applied Econometric Techniques. Ann Arbor: The University of Michigan Press. Dagher, L. (2011). “ Natural Gas Demand at the Utility Level: An Application of Dynamic Elasticities.” Energy Economics 34: 961-969. Dahl, C. A. (1993). “A Survey of Energy Demand Elasticities in Support of the Development of the NEMS.” Prepared for the US Department of Energy under contract De-Ap01-93EI23499. Colorado School of Mines. Diebold, F.X. and M. Nerlove (1990). “Unit Roots in Economic Time Series: A Selective Survey.” In G.F. Rhodes and T.B. Fomby, eds., Advances in Econometrics, Volume 8: 3-69. Greenwich, CT: JAI Press. Engle, R.F., and C.W.J. Granger (1987). “Co-integration and Error Corrections Representation, Estimation, and Testing.” Econometrica 55: 251-76. Engle, R.F., D.F. Hendry, and J-F Richard (1983). “Exogeneity.” Econometrica 51 (2): 277-304. Fisher, F.M., P. H. Cootner, and M.N. Baily (1972). “An Econometric Model of the World Copper Industry.” Bell Journal of Economics and Management Science 3 (2): 568–609. Garcia-Cerrutti, L. M. (2000). “Estimating Elasticities of Residential Energy Demand from Panel County Data using Dynamic Random Variable Models with Heteroskedastic and Correlated Error Terms.” Resource and Energy Economics 22: 355-366. Hamilton, J. D. (1994). Time Series Analysis. Princeton, NJ: Princeton University Press. Harvey, A. (1990). Econometric Analysis of Time Series, 2nd edition. Cambridge: MIT Press. Hendry, D. F. (2008). “Equilibrium-Correction Models.” In Steven N. Durlauf and Lawrence E. Blume, eds., The New Palgrave Dictionary of Economics, 2nd Edition in Eight Volumes. Hampshire: Palgrave MacMillan. Hendry, D., K. Juselius (2000). “Explaining Cointegration Analysis: Part I.” Energy Journal 21: 1-42. Huntington, H. G. (2007). “Industrial Natural Gas Consumption in the United States: An Empirical Model for Evaluating Future Trends.” Energy Economics 29: 743-759. Joutz, F., and R.P. Trost (2007). “An Economic Analysis of Consumer Response to Natural Gas Prices.” American Gas Association. Juselius, K. (2006). The Cointegrated VAR Model: Methodology and Applications. Oxford, UK: Oxford University Press. Mizon, G. E. (1995). "A Simple Message for Autocorrelation Correctors: Don't." Journal of Econometrics 69: 267-288. Munley, V. G., L. W Taylor, and J. P. Formby (1990). “Electricity Demand in Multi-family, Renter-occupied Residences.” Southern Economic Journal 57(1): 178-194. Pei F., and J.E. Tilton (1999). “Consumer Preferences, Technological Change, and the Short-run Income Elasticity of Metal Demand.” Resources Policy 25: 87-109. Pesaran, M. H., and Y. Shin (1999). “An Autoregressive Distributed Lag Modeling Approach to Cointegration Analysis.” In S. Strom, ed., Econometrics and Economic Theory in the Twentieth Century: The Ragnar Frisch Centennial Symposium. Cambridge: Cambridge University Press. Pindyck, R. S. and D. L. Rubinfeld (2005). Micrcoeconomics, 6th edition. Essex: Pearson Education. Sims, C., J. Stock, and M. Watson (1990). “Inference in Linear Time Series Models with Some Unit Roots.” Econometrica 58: 113-144. Stock, J. H. (1987). “Asymptotic Properties of Least Squares Estimators of Co-integrating Vectors.” Econometrica 55: 1035-56. Stock, J. H., and M. W. Watson (1988). “Variable Trends in Economic Time Series.” Journal of Economic Perspectives 2 (3): 147-174. Stock, J. H., and M. W. Watson (2007). Introduction to Econometrics, 2nd edition. Boston, MA: Pearson Education. Urbain, J. P. (1992). “On weak exogeneity in error correction models.” Oxford Bulletin of Economics and Statistics 54: 187-207. Uri, N. D. (1975). Towards an Efficient Allocation of Electrical Energy. (pp. 11-26). Lexington, MA: Heath. Watson, M. W. (1994). “Vector Autoregressions and Cointegration.” In R.F. Engle and D.L. McFadden, eds., Handbook of Econometrics, Volume IV: 2843-2915. Amsterdam: Elsevier Science. West, K. D. (1988). “Asymptotic Normality When Regressors Have a Unit Root.” Econometrica 56: 1397-1417. |

URI: | https://mpra.ub.uni-muenchen.de/id/eprint/116122 |