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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)

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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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File URL: http://www.seec.surrey.ac.uk/Research/SEEDS/SEEDS108.pdf
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Publisher Info
Paper provided by Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey in its series Surrey Energy Economics Centre (SEEC), Department 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), March 2005, pp. 239-244 (Revised Version).
Handle: RePEc:sur:seedps:108

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Related research
Keywords: Energy Demand; Underlying Trends.;

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Find related papers by JEL classification:
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Hunt, Lester C. & Judge, Guy & Ninomiya, Yasushi, 2003. "Underlying trends and seasonality in UK energy demand: a sectoral analysis," Energy Economics, Elsevier, vol. 25(1), pages 93-118, January. [Downloadable!] (restricted)
    Other versions:
  2. Lester C Hunt & Guy Judge & Yasushi Ninomiya, 2003. "Modelling Underlying Energy Demand Trends," Surrey Energy Economics Centre (SEEC), Department of Economics Discussion Papers (SEEDS) 105, Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey. [Downloadable!]
  3. 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.
  4. Harvey, Andrew, 1997. "Trends, Cycles and Autoregressions," Economic Journal, Royal Economic Society, vol. 107(440), pages 192-201, January. [Downloadable!] (restricted)
  5. Beenstock, Michael & Wilcocks, Patrick, 1983. "Energy and economic activity: a reply to Kouris," Energy Economics, Elsevier, vol. 5(3), pages 212-212, July. [Downloadable!] (restricted)
  6. 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. 24(3), pages 63-96.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rao, B. Bhaskara & Rao, Gyaneshwar, 2007. "Structural breaks and energy efficiency in Fiji," MPRA Paper 3258, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Rao, B. Bhaskara, 2007. "Deterministic and stochastic trends in the time series models: A guide for the applied economist," MPRA Paper 3580, University Library of Munich, Germany. [Downloadable!]
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