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Estimating Underlying Energy Demand Trends using UK Annual Data

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Author Info

  • John Dimitropoulos

    (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)

  • Lester C. Hunt

    ()
    (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)

  • Guy Judge

    (Department of Economics, University of Portsmouth)

Abstract

Employing the Structural Time Series Model (STSM) approach suggested by Harvey (1989, 1997), and based on annual data for the UK from 1967-2002, this paper reiterates the importance of using a stochastic rather than a linear deterministic trend formulation when estimating energy demand models, a practice originally established by Hunt et al. (2003a,b) using quarterly UK data. The findings confirm that important non-linear and stochastic trends are present as a result of technical change and other exogenous factors driving demand, and that a failure to account for these trends will lead to biased estimates of the long-run price and income elasticities. The study also establishes that, provided these effects are allowed for, the estimated long-run elasticities are robust to the different data frequencies used in the modelling.

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Bibliographic Info

Paper provided by Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey in its series Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) with number 108.

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Length: 22 pages
Date of creation: Jun 2004
Date of revision:
Publication status: Published in Applied Economics Letters, 12(4), 2005, pp. 239-244. (Revised Version)
Handle: RePEc:sur:seedps:108

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Keywords: Energy Demand; Underlying Trends.;

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References

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  1. Beenstock, Michael & Wilcocks, Patrick, 1983. "Energy and economic activity: a reply to Kouris," Energy Economics, Elsevier, vol. 5(3), pages 212-212, July.
  2. Harvey, Andrew C & Koopman, Siem Jan, 1992. "Diagnostic Checking of Unobserved-Components Time Series Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 377-89, October.
  3. Hunt, L.C. & Judge, G. & Ninomiya, Y., 2000. "Underlying Trends and Seasonality in UK Energy Demands: A Sectorial Analysis," Papers 134, Portsmouth University - Department of Economics.
  4. Welsch, Heinz, 1989. "The reliability of aggregate energy demand functions : An application of statistical specification error tests," Energy Economics, Elsevier, vol. 11(4), pages 285-292, October.
  5. Harvey, Andrew, 1997. "Trends, Cycles and Autoregressions," Economic Journal, Royal Economic Society, vol. 107(440), pages 192-201, January.
  6. Lester C Hunt & Guy Judge & Yasushi Ninomiya, 2003. "Modelling Underlying Energy Demand Trends," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 105, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  7. Kouris, George, 1983. "Fuel consumption for road transport in the USA," Energy Economics, Elsevier, vol. 5(2), pages 89-99, April.
  8. Lester C. Hunt & Yasushi Ninomiya, 2003. "Unravelling Trends and Seasonality: A Structural Time Series Analysis of Transport Oil Demand in the UK and Japan," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 63-96.
  9. Jones, Clifton T, 1994. "Accounting for technical progress in aggregate energy demand," Energy Economics, Elsevier, vol. 16(4), pages 245-252, October.
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