Estimating Underlying Energy Demand Trends using UK Annual Data
Employing the Structural Time Series Model (STSM) approach suggested by Harvey (1989, 1997), and based on annual data for the UK from 1967-2002, this paper reiterates the importance of using a stochastic rather than a linear deterministic trend formulation when estimating energy demand models, a practice originally established by Hunt et al. (2003a,b) using quarterly UK data. The findings confirm that important non-linear and stochastic trends are present as a result of technical change and other exogenous factors driving demand, and that a failure to account for these trends will lead to biased estimates of the long-run price and income elasticities. The study also establishes that, provided these effects are allowed for, the estimated long-run elasticities are robust to the different data frequencies used in the modelling.
|Date of creation:||Jun 2004|
|Date of revision:|
|Publication status:||Published in Applied Economics Letters, 12(4), 2005, pp. 239-244. (Revised Version)|
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- Harvey, Andrew, 1997. "Trends, Cycles and Autoregressions," Economic Journal, Royal Economic Society, vol. 107(440), pages 192-201, January.
- Beenstock, Michael & Wilcocks, Patrick, 1983. "Energy and economic activity: a reply to Kouris," Energy Economics, Elsevier, vol. 5(3), pages 212-212, July.
- Jones, Clifton T, 1994. "Accounting for technical progress in aggregate energy demand," Energy Economics, Elsevier, vol. 16(4), pages 245-252, October.
- Lester C Hunt & Guy Judge & Yasushi Ninomiya, 2003.
"Modelling Underlying Energy Demand Trends,"
Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS)
105, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
- 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.
- Kouris, George, 1983. "Fuel consumption for road transport in the USA," Energy Economics, Elsevier, vol. 5(2), pages 89-99, April.
- Hunt, Lester C. & Judge, Guy & Ninomiya, Yasushi, 2003.
"Underlying trends and seasonality in UK energy demand: a sectoral analysis,"
Elsevier, vol. 25(1), pages 93-118, January.
- Hunt, L.C. & Judge, G. & Ninomiya, Y., 2000. "Underlying Trends and Seasonality in UK Energy Demands: A Sectorial Analysis," Papers 134, Portsmouth University - Department of Economics.
- Harvey, Andrew C & Koopman, Siem Jan, 1992. "Diagnostic Checking of Unobserved-Components Time Series Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 377-89, October.
- Welsch, Heinz, 1989. "The reliability of aggregate energy demand functions : An application of statistical specification error tests," Energy Economics, Elsevier, vol. 11(4), pages 285-292, October.
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