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Cointegration of electricity consumption and GDP in the presence of smooth structural changes

Author

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  • Arčabić, Vladimir
  • Gelo, Tomislav
  • Sonora, Robert J.
  • Šimurina, Jurica

Abstract

This paper analyzes the cointegration of electricity consumption, prices, and GDP as well as the long-run price and income elasticities for a sample of European Union (EU) countries. We control for smooth structural changes in the data using recently developed unit root and autoregressive distributed lag (ADL) cointegration tests, which approximate an unknown number of smooth breaks with a flexible Fourier function. Structural breaks in electricity consumption may exist in EU countries because of activities associated with the European Energy Union and country-specific idiosyncracies. Our results indicate that the Fourier cointegration test rejects the null hypothesis of no cointegration more often in comparison to the standard ADL test. Elasticity estimates show clear differences between old and new member states when structural breaks are ignored, but less so when using structural breaks methods.

Suggested Citation

  • Arčabić, Vladimir & Gelo, Tomislav & Sonora, Robert J. & Šimurina, Jurica, 2021. "Cointegration of electricity consumption and GDP in the presence of smooth structural changes," Energy Economics, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:eneeco:v:97:y:2021:i:c:s0140988321001018
    DOI: 10.1016/j.eneco.2021.105196
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    Cited by:

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    2. Liddle, Brantley & Parker, Steven & Hasanov, Fakhri, 2023. "Why has the OECD long-run GDP elasticity of economy-wide electricity demand declined? Because the electrification of energy services has saturated," Energy Economics, Elsevier, vol. 125(C).
    3. Liu, Fengqi & Kang, Yuxin & Guo, Kun, 2022. "Is electricity consumption of Chinese counties decoupled from carbon emissions? A study based on Tapio decoupling index," Energy, Elsevier, vol. 251(C).
    4. Aryanpur, V. & Ghahremani, M. & Mamipour, S. & Fattahi, M. & Ó Gallachóir, B. & Bazilian, M.D. & Glynn, J., 2022. "Ex-post analysis of energy subsidy removal through integrated energy systems modelling," Renewable and Sustainable Energy Reviews, Elsevier, vol. 158(C).

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    More about this item

    Keywords

    Electricity consumption; Cointegration; Structural breaks; Nonlinear models;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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