IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Asymmetric price responses and the underlying energy demand trend: Are they substitutes or complements? Evidence from modelling OECD aggregate energy demand

  • Adeyemi, Olutomi I.
  • Broadstock, David C.
  • Chitnis, Mona
  • Hunt, Lester C.
  • Judge, Guy

A number of energy demand studies have considered the importance of modelling Asymmetric Price Responses (APR), for example, the often-cited work of Gately and Huntington (2002). Griffin and Schulman (2005) questioned the asymmetric approach arguing that this is only capturing energy saving technical progress. Huntington (2006), however, showed that for whole economy aggregate energy and oil demand there is a role statistically for both APR and exogenous energy saving technical change. In a separate strand of the literature the idea of the Underlying Energy Demand Trend (UEDT) has been developed, see for example Hunt et al. (2003a and 2003b) and Dimitropoulos et al. (2005). They argue that it is important, in time series energy demand models, to allow for stochastic trends (or UEDTs) based upon the structural time series/dynamic regression methodology recommended by Harvey (1989, 1997). This paper attempts to bring these strands of the literature together by proposing a testing procedure for the UEDT and APR in energy demand models within both a panel context (consistent with the Huntington, 2006 approach) and the structural time series modelling framework. A set of tests across a range of specifications using time-series and panel data are therefore suggested in order to try and ascertain whether energy saving technical change (or the more general UEDT) and APR are substitutes for each other when modelling energy demand or whether they are actually picking up different influences and are therefore complements. Using annual whole economy data for 17 OECD countries over the period 1960-2006 the results suggest that for most of the countries the UEDT is preferred to APR, whereas for another group the UEDT and APR are complements, and for another group they are substitutes. It is argued therefore that energy demand modellers should not assume at the outset that one method is superior to the other. Moreover, wherever possible, a general model (be it in a time series or panel context) that includes a 'non linear UEDT' and APR should be initially estimated, and only if accepted by the data should symmetry and/or a more restrictive UEDT be imposed.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 32 (2010)
Issue (Month): 5 (September)
Pages: 1157-1164

in new window

Handle: RePEc:eee:eneeco:v:32:y:2010:i:5:p:1157-1164
Contact details of provider: Web page:

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.:

as in new window
  1. Dermot Gately, 1993. "The Imperfect Price-Reversibility of World Oil Demand," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 163-182.
  2. Kouris, George, 1983. "Energy consumption and economic activity in industrialized economies--a note," Energy Economics, Elsevier, vol. 5(3), pages 207-212, July.
  3. Dargay, Joyce & Gately, Dermot, 1995. "The imperfect price reversibility of non-transport oil demand in the OECD," Energy Economics, Elsevier, vol. 17(1), pages 59-71, January.
  4. John Dimitropoulos & Lester Hunt & Guy Judge, 2005. "Estimating underlying energy demand trends using UK annual data," Applied Economics Letters, Taylor & Francis Journals, vol. 12(4), pages 239-244.
  5. Hillard G. Huntington, 2006. "A Note on Price Asymmetry as Induced Technical Change," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 1-8.
  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. 0(Number 3), pages 63-96.
  7. Dermot Gately & Hiliard G. Huntington, 2002. "The Asymmetric Effects of Changes in Price and Income on Energy and Oil Demand," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 19-55.
  8. Arqam Al-Rabbaie & Lester C Hunt, 2006. "OECD Energy Demand: Modelling Underlying Energy Demand Trends using the Structural Time Series Model," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 114, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  9. Harvey, Andrew, 1997. "Trends, Cycles and Autoregressions," Economic Journal, Royal Economic Society, vol. 107(440), pages 192-201, January.
  10. Majid Ahmadian & Mona Chitnis & Lester C. Hunt, 2007. "Gasoline demand, pricing policy and social welfare in the Islamic Republic of Iran," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 31(2), pages 105-124, 06.
  11. James M. Griffin & Craig T. Schulman, 2005. "Price Asymmetry in Energy Demand Models: A Proxy for Energy-Saving Technical Change?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-22.
  12. Beenstock, M. & Willcocks, P., 1981. "Energy consumption and economic activity in industrialized countries : The dynamic aggregate time series relationship," Energy Economics, Elsevier, vol. 3(4), pages 225-232, October.
  13. Francois Lescaroux & Olivier Rech, 2008. "The Impact of Automobile Diffusion on the Income Elasticity of Motor Fuel Demand," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 41-60.
  14. Beenstock, Michael & Wilcocks, Patrick, 1983. "Energy and economic activity: a reply to Kouris," Energy Economics, Elsevier, vol. 5(3), pages 212-212, July.
  15. Dargay, Joyce & Gately, Dermot, 1997. "The demand for transportation fuels: Imperfect price-reversibility?," Transportation Research Part B: Methodological, Elsevier, vol. 31(1), pages 71-82, February.
  16. 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.
  17. Olutomi I Adeyemi & Lester C Hunt, 2006. "Modelling OECD Industrial Energy Demand: Asymmetric Price Responses and Energy – Saving Technical Change," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 115, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  18. Kouris, George, 1983. "Fuel consumption for road transport in the USA," Energy Economics, Elsevier, vol. 5(2), pages 89-99, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:32:y:2010:i:5:p:1157-1164. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.