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Tying up loose ends: A note on the impact of omitting MA residuals from panel energy demand models based on the Koyck lag transformation

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  • David C Broadstock

    (Research Institute of Economics and Management (RIEM), Southwestern University of Finance and Economics, Sichuan, China and Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey, UK.)

  • Lester C Hunt

    (Surrey Energy Economics Centre (SEEC), University of Surrey, UK.)

Abstract

Energy demand functions based on Koyck lag transformation result in an MA error process that is generally ignored in estimated panel data models. This note explores the implications of this assumption by estimating panel energy demand functions with asymmetric price responses and an MA process modelled explicitly. It is found that although the models with an MA term might be preferred statistically, they result in inferential problems implying that there might be a need to revisit the specification of panel energy demand functions used in a number of previous studies.

Suggested Citation

  • David C Broadstock & Lester C Hunt, 2013. "Tying up loose ends: A note on the impact of omitting MA residuals from panel energy demand models based on the Koyck lag transformation," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 140, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  • Handle: RePEc:sur:seedps:140
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    File URL: https://repec.som.surrey.ac.uk/seeds/SEEDS140.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Koyck-lag transformation; Moving average errors; Panel data; Aggregate energy demand.;
    All these keywords.

    JEL classification:

    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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