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Price Asymmetry In Energy Demand Models: A Proxy for Energy-Saving Technical Change?

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  • James M. Griffin
  • Craig T. Schulman

Abstract

It has become fashionable to believe that energy and oil demand respond asymmetrically to price increases and decreases. Unfortunately, the asymmetric price model utilized by Gately and others has the unintended by-product of producing intercept shifts in the demand function purely in response to price volatility. Thus what is in fact energy saving technical change is attributed to price asymmetry. The two become observationally equivalent. Furthermore, the asymmetric price model has the peculiarity of being dependent on the starting point of the data period so that parameter estimates are not robust across different sample periods. We demonstrate empirically using a panel of OECD countries for oil and energy demand that symmetric price responses cannot be rejected after explicitly controlling for energy saving technical change within a fixed effects model.

Suggested Citation

  • James M. Griffin & Craig T. Schulman, 2005. "Price Asymmetry In Energy Demand Models: A Proxy for Energy-Saving Technical Change?," The Energy Journal, , vol. 26(2), pages 1-21, April.
    • Handle: RePEc:sae:enejou:v:26:y:2005:i:2:p:1-21
    DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No2-1
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    References listed on IDEAS

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    1. Lance J. Bachmeier & James M. Griffin, 2003. "New Evidence on Asymmetric Gasoline Price Responses," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 772-776, August.
    2. Haas, Reinhard & Schipper, Lee, 1998. "Residential energy demand in OECD-countries and the role of irreversible efficiency improvements," Energy Economics, Elsevier, vol. 20(4), pages 421-442, September.
    3. Rudolf Wolffram, 1971. "Positivistic Measures of Aggregate Supply Elasticities: Some New Approaches—Some Critical Notes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 53(2), pages 356-359.
    4. repec:aen:journl:2002v23-01-a02 is not listed on IDEAS
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    Cited by:

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    2. Bashmakov, Igor & Grubb, Michael & Drummond, Paul & Lowe, Robert & Myshak, Anna & Hinder, Ben, 2024. "“Minus 1” and energy costs constants: Empirical evidence, theory and policy implications," Structural Change and Economic Dynamics, Elsevier, vol. 71(C), pages 95-115.
    3. Xu, Jiangchuan & Wang, En-Ze, 2024. "The path to energy savings and CO2 emission reductions in China's industrial sector from the perspective of factor price distortions correction - Based on an extended capital vintage model," Energy, Elsevier, vol. 313(C).

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