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Time-varying Long-run Income and Output Elasticities of Electricity Demand

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Abstract

It is widely accepted that long-run elasticities of demand for electricity are not stable over time. We model long-run sectoral electricity demand using a time-varying cointegrating vector. Specifically, the coefficient on income (residential sector) or output (commercial and industrial sectors) is allowed to follow a smooth semiparametric function of time, providing a flexible specification that allows more accurate out-of-sample forecasts than either fixed or discretely changing regression coefficients. We fit the model to Korean data over 1995:01-2012:12 for the residential sector and 1985:01-2012:12 for the commercial and industrial sectors. The rapid development of Korea over this period provides a very clear case for allowing the coefficient on income/output to vary over time, but the essential modeling strategy is widely applicable.

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File URL: http://economics.missouri.edu/working-papers/2014/WP1409_miller.pdf
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Paper provided by Department of Economics, University of Missouri in its series Working Papers with number 1409.

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Length: 37 pgs.
Date of creation: 03 Jun 2014
Date of revision:
Handle: RePEc:umc:wpaper:1409

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Keywords: electricity demand; income elasticity of demand; output elasticity of conditional factor demand; cointegration; time-varying coefficients;

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