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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

Author

Listed:
  • 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

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    1. Hunt, Lester C. & Judge, Guy & Ninomiya, Yasushi, 2003. "Underlying trends and seasonality in UK energy demand: a sectoral analysis," Energy Economics, Elsevier, vol. 25(1), pages 93-118, January.
    2. Adeyemi, Olutomi I. & Broadstock, David C. & Chitnis, Mona & Hunt, Lester C. & Judge, Guy, 2010. "Asymmetric price responses and the underlying energy demand trend: Are they substitutes or complements? Evidence from modelling OECD aggregate energy demand," Energy Economics, Elsevier, vol. 32(5), pages 1157-1164, September.
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    5. Adeyemi, Olutomi I. & Hunt, Lester C., 2007. "Modelling OECD industrial energy demand: Asymmetric price responses and energy-saving technical change," Energy Economics, Elsevier, vol. 29(4), pages 693-709, July.
    6. Chen, Shiu-Sheng, 2009. "Oil price pass-through into inflation," Energy Economics, Elsevier, vol. 31(1), pages 126-133, January.
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    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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