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Interfuel Substitution: Evidence from the Markov Switching Minflex Laurent Demand System with BEKK Errors

Author

Listed:
  • Apostolos Serletis

    (University of Calgary)

  • Libo Xu

Abstract

We investigate interfuel substitution in the United States using the minflex Laurent demand system and a century of data (from 1919 to 2012). We relax the assumption of constant parameters in the demand system, and also relax the homoskedasticity assumption, instead assuming that the covariance matrix of the errors is time-varying. Our results are consistent with theoretical regularity and indicate that the Morishima elasticities of substitution are always positive for all pairs of the energy goods (suggesting substitutability), but exhibit large swings across two regimes, generally being higher in the high demand volatility regime before the 1950s.

Suggested Citation

  • Apostolos Serletis & Libo Xu, "undated". "Interfuel Substitution: Evidence from the Markov Switching Minflex Laurent Demand System with BEKK Errors," Working Papers 2019-06, Department of Economics, University of Calgary, revised 28 Jun 2019.
    • Handle: RePEc:clg:wpaper:2019-06
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    Cited by:

    1. Mufutau Opeyemi Bello & Sakiru Adebola Solarin, 2022. "Searching for sustainable electricity generation: The possibility of substituting coal and natural gas with clean energy," Energy & Environment, , vol. 33(1), pages 64-84, February.
    2. Kilian, Lutz, 2022. "Understanding the estimation of oil demand and oil supply elasticities," Energy Economics, Elsevier, vol. 107(C).
    3. Hossain, A. K. M. Nurul & Serletis, Apostolos, 2020. "Biofuel substitution in the U.S. transportation sector," The Journal of Economic Asymmetries, Elsevier, vol. 22(C).
    4. Serletis, Apostolos & Xu, Libo, 2022. "Interfuel substitution: A copula approach," Journal of Commodity Markets, Elsevier, vol. 28(C).

    More about this item

    Keywords

    Minflex Laurent flexible form; Markov regime switching; GARCH; BEKK.;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation

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