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Modelling Technical Progress: An Application of the Stochastic Trend Model to UK Energy Demand

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Author Info
Lester C. Hunt (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)
Guy Judge (Department of Economics, University of Portsmouth)
Yashushi Ninomiya (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)

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Abstract

The precise role of technical progress in estimated energy demand functions has not been well researched. Traditionally a deterministic time trend has been used, implicitly assuming technical progress continues at a fixed rate over time. In this paper, the structural time series model is employed allowing for a stochastic time trend and stochastic seasonal dummies. Therefore, technical progress and seasonal variation are treated as unobservable components that evolve over time. The conventional deterministic trend model is a restricted case of the structural time series model and found not to be accepted by the data for a number of energy types. Energy demand functions for a variety of energy types are estimated for the UK using unadjusted quarterly data. It is found that technical progress in energy usage does not always exhibit a deterministic trend pattern as the conventional model assumes. It often fluctuates over time and is likely to be affected by a range of exogenous factors but also by changes in energy prices (and possibly income also).

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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 99.

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Length: 40 pages
Date of creation: Jan 2000
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Handle: RePEc:sur:seedps:99

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Related research
Keywords: energy demand; technical progress; stochastic trend model; seasonality;

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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

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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 & Manning, Neil, 1989. "Energy Price- and Income-Elasticities of Demand: Some Estimates for the UK Using the Cointegration Procedure," Scottish Journal of Political Economy, Scottish Economic Society, vol. 36(2), pages 183-93, May.
  2. Harvey, A C, et al, 1986. "Stochastic Trends in Dynamic Regression Models: An Application to the Employment-Output Equations," Economic Journal, Royal Economic Society, vol. 96(384), pages 975-85, December. [Downloadable!] (restricted)
  3. Hunt,L.C. & Judge,G., 1995. "Evolving Seasonal Patterns in UK Energy Series," Papers 63, Portsmouth University - Department of Economics.
  4. Harvey, A C, 1985. "Trends and Cycles in Macroeconomic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 216-27, June.
  5. Clements, Michael P & Madlener, Reinhard, 1999. "Seasonality, Cointegration, and Forecasting UK Residential Energy Demand," Scottish Journal of Political Economy, Scottish Economic Society, vol. 46(2), pages 185-206, May. [Downloadable!] (restricted)
  6. Fouquet, Roger & Pearson, Peter & Hawdon, David & Robinson, Colin & Stevens, Paul, 1997. "The future of UK final user energy demand," Energy Policy, Elsevier, vol. 25(2), pages 231-240, February. [Downloadable!] (restricted)
  7. Harvey, Andrew & Scott, Andrew, 1994. "Seasonality in Dynamic Regression Models," Economic Journal, Royal Economic Society, vol. 104(427), pages 1324-45, November. [Downloadable!] (restricted)
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  8. Jones, Clifton T, 1994. "Accounting for technical progress in aggregate energy demand," Energy Economics, Elsevier, vol. 16(4), pages 245-252, October. [Downloadable!] (restricted)
  9. Harvey, Andrew, 1997. "Trends, Cycles and Autoregressions," Economic Journal, Royal Economic Society, vol. 107(440), pages 192-201, January. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
  11. Lester C. Hunt & Robert Witt, 1995. "An Analysis of UK Energy Demand Using Multivariate Cointegration," Surrey Energy Economics Centre (SEEC), Department of Economics Discussion Papers (SEEDS) 86, Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey. [Downloadable!]
  12. Smith, Clare & Hall, Stephen & Mabey, Nick, 1995. "Econometric modelling of international carbon tax regimes," Energy Economics, Elsevier, vol. 17(2), pages 133-146, April. [Downloadable!] (restricted)
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(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. 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!]
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