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Modelling Technical Progress: An Application of the Stochastic Trend Model to UK Energy Demand

  • Lester C. Hunt

    (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)

  • Guy Judge

    (Department of Economics, University of Portsmouth)

  • Yashushi Ninomiya

    (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)

The precise role of technical progress in estimated energy demand functions has not been well researched. Traditionally a deterministic time trend has been used, implicitly assuming technical progress continues at a fixed rate over time. In this paper, the structural time series model is employed allowing for a stochastic time trend and stochastic seasonal dummies. Therefore, technical progress and seasonal variation are treated as unobservable components that evolve over time. The conventional deterministic trend model is a restricted case of the structural time series model and found not to be accepted by the data for a number of energy types. Energy demand functions for a variety of energy types are estimated for the UK using unadjusted quarterly data. It is found that technical progress in energy usage does not always exhibit a deterministic trend pattern as the conventional model assumes. It often fluctuates over time and is likely to be affected by a range of exogenous factors but also by changes in energy prices (and possibly income also).

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File URL: http://www.seec.surrey.ac.uk/Research/SEEDS/SEEDS99.pdf
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Paper provided by Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey in its series Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) with number 99.

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Length: 40 pages
Date of creation: Jan 2000
Date of revision:
Handle: RePEc:sur:seedps:99
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  1. Harvey, A C, et al, 1986. "Stochastic Trends in Dynamic Regression Models: An Application to the Employment-Output Equations," Economic Journal, Royal Economic Society, vol. 96(384), pages 975-85, December.
  2. 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.
  3. Hunt,L.C. & Judge,G., 1995. "Evolving Seasonal Patterns in UK Energy Series," Papers 63, Portsmouth University - Department of Economics.
  4. 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.
  5. Jones, Clifton T, 1994. "Accounting for technical progress in aggregate energy demand," Energy Economics, Elsevier, vol. 16(4), pages 245-252, October.
  6. Harvey, Andrew, 1997. "Trends, Cycles and Autoregressions," Economic Journal, Royal Economic Society, vol. 107(440), pages 192-201, January.
  7. Fouquet, Roger & Pearson, Peter & Hawdon, David & Robinson, Colin & Stevens, Paul, 1997. "The future of UK final user energy demand," Energy Policy, Elsevier, vol. 25(2), pages 231-240, February.
  8. Kouris, George, 1983. "Energy consumption and economic activity in industrialized economies--a note," Energy Economics, Elsevier, vol. 5(3), pages 207-212, July.
  9. Andrew C Harvey & Andrew Scott, 1994. "Seasonality in Dynamic Regression Models," CEP Discussion Papers dp0184, Centre for Economic Performance, LSE.
  10. Lester C. Hunt & Robert Witt, 1995. "An Analysis of UK Energy Demand Using Multivariate Cointegration," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 86, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  11. Harvey, A C, 1985. "Trends and Cycles in Macroeconomic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 216-27, June.
  12. Clements, Michael P & Madlener, Reinhard, 1999. "Seasonality, Cointegration, and Forecasting UK Residential Energy Demand," Scottish Journal of Political Economy, Scottish Economic Society, vol. 46(2), pages 185-206, May.
  13. Smith, Clare & Hall, Stephen & Mabey, Nick, 1995. "Econometric modelling of international carbon tax regimes," Energy Economics, Elsevier, vol. 17(2), pages 133-146, April.
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