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A Revival of the Autoregressive Distributed Lag Model in Estimating Energy Demand Relationships

  • Bentzen, J.
  • Engsted, T.

The findings in the recent energy economic literature that energy economic variables are non-stationary, heve led to an implicit or explicit dismissal of the standard autoregressive distributed lag (ARDL) model in estimating energy demand relationships. However, Pesaran and Shin (1997) show that the ARDL model remains valid when the underlying variables are non-stationary, provided the variables are cointegrated. In this paper we use the ARDL approach to estimated a demand relationship for Danish residential energy consumption, and the ARDL estimates are compared to the estimates obtained using cointegration techniques and error-correction models (ECMs). It turns out that both quantitavely and qualitatively, the ARDL approach and the cointegration/ECM approach give very similar results.

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Paper provided by Aarhus School of Business - Department of Economics in its series Papers with number 99-7.

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Length: 15 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:fth:aascbu:99-7
Contact details of provider: Postal: Department of Economics, Faculty of Business Administration. The Aarhus School of Business. Fuglesangs Alle 4. DK- 8210 Aarhus V - Denmark
Phone: +45 89 486396
Fax: +45 8615 5175
Web page: http://www.asb.dk/about/departments/nat.aspx

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  1. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  2. Hunt, Lester & Manning, Neil, 1989. "Energy Price- and Income-Elasticities of Demand: Some Estimates for the UK Using the Cointegration Procedure," Scottish Journal of Political Economy, Scottish Economic Society, vol. 36(2), pages 183-93, May.
  3. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
  4. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  5. Peter C.B. Phillips & Mico Loretan, 1989. "Estimating Long Run Economic Equilibria," Cowles Foundation Discussion Papers 928, Cowles Foundation for Research in Economics, Yale University.
  6. Peter C.B. Phillips, 1985. "Understanding Spurious Regressions in Econometrics," Cowles Foundation Discussion Papers 757, Cowles Foundation for Research in Economics, Yale University.
  7. Bentzen, Jan & Engsted, Tom, 1993. "Short- and long-run elasticities in energy demand : A cointegration approach," Energy Economics, Elsevier, vol. 15(1), pages 9-16, January.
  8. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
  9. Søren Johansen & Katarina Juselius, 1992. "Identification of the Long-Run and the Short-Run Structure: An Application to the ISLM Model," Discussion Papers 92-04, University of Copenhagen. Department of Economics.
  10. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  11. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
  12. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
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