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A nonlinear approach to modelling the residential electricity consumption in Ethiopia

  • Gabreyohannes, Emmanuel
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    In this paper an attempt is made to model, analyze and forecast the residential electricity consumption in Ethiopia using the self-exciting threshold autoregressive (SETAR) model and the smooth transition regression (STR) model. For comparison purposes, the application was also extended to standard linear models. During the empirical presentation of both models, significant nonlinear effects were found and linearity was rejected. The SETAR model was found out to be relatively better than the linear autoregressive model in out-of-sample point and interval (density) forecasts. Results from our STR model showed that the residual variance of the fitted STR model was only about 65.7% of that of the linear ARX model. Thus, we can conclude that the inclusion of the nonlinear part, which basically accounts for the arrival of extreme price events, leads to improvements in the explanatory abilities of the model for electricity consumption in Ethiopia.

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    File URL: http://www.sciencedirect.com/science/article/B6V7G-4X2JSWT-1/2/d0c3bba341f74eeac8eed50c06c863e7
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    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 32 (2010)
    Issue (Month): 3 (May)
    Pages: 515-523

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    Handle: RePEc:eee:eneeco:v:32:y:2010:i:3:p:515-523
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    1. Dick van Dijk & Timo Terasvirta & Philip Hans Franses, 2002. "Smooth Transition Autoregressive Models — A Survey Of Recent Developments," Econometric Reviews, Taylor & Francis Journals, vol. 21(1), pages 1-47.
    2. Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
    3. Donald W.K. Andrews & Werner Ploberger, 1992. "Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative," Cowles Foundation Discussion Papers 1015, Cowles Foundation for Research in Economics, Yale University.
    4. Pesaran, M. Hashem & Potter, Simon M., 1997. "A floor and ceiling model of US output," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 661-695, May.
    5. Misiorek Adam & Trueck Stefan & Weron Rafal, 2006. "Point and Interval Forecasting of Spot Electricity Prices: Linear vs. Non-Linear Time Series Models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 10(3), pages 1-36, September.
    6. Clements, Michael P & Smith, Jeremy, 1996. "A Monte Carlo Study of the Forecasting Performance of Empirical Setar Models," The Warwick Economics Research Paper Series (TWERPS) 464, University of Warwick, Department of Economics.
    7. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
    8. Moral-Carcedo, Julian & Vicens-Otero, Jose, 2005. "Modelling the non-linear response of Spanish electricity demand to temperature variations," Energy Economics, Elsevier, vol. 27(3), pages 477-494, May.
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