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

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.

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
• 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

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