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Construction of a fuel demand function portraying interfuel substitution, a system dynamics approach

Listed author(s):
  • Ibrahim Abada
  • Vincent Briat
  • Olivier Massol

Most of the recent numerical market equilibrium models of natural gas markets use imperfect competition assumptions. These models are typically embedded with an oversimplified representation of the demand side, usually a single-variable affine function, that does not capture any dynamic adjustment to past prices. To remedy this, we report an effort to construct an enhanced functional specification using the system dynamics-based model of Moxnes (1987, 1990). Thanks to a vintage representation of capital stock, this putty-clay model captures the effect of both past and current energy prices on fuel consumption. Using a re-calibrated version of this model, we first confirm the pertinence of this modeling framework to represent interfuel substitutions at different fuel prices in the industrial sector. Building on these findings, a dynamic functional specification of the demand function for natural gas is then proposed and calibrated.

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File URL: http://economix.fr/pdf/dt/2011/WP_EcoX_2011-13.pdf
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Paper provided by University of Paris West - Nanterre la Defense, EconomiX in its series EconomiX Working Papers with number 2011-13.

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Length: 29 pages
Date of creation: 2011
Handle: RePEc:drm:wpaper:2011-13
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Web page: https://economix.fr/
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