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)|
|Contact details of provider:|| Postal: Guildford, Surrey GU2 5XH, UK|
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Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS)
105, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
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