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

Author

Listed:
  • 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)

Abstract

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).

Suggested Citation

  • Lester C. Hunt & Guy Judge & Yashushi Ninomiya, 2000. "Modelling Technical Progress: An Application of the Stochastic Trend Model to UK Energy Demand," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 99, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
  • Handle: RePEc:sur:seedps:99
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    File URL: http://www.seec.surrey.ac.uk/Research/SEEDS/SEEDS99.pdf
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    References listed on IDEAS

    as
    1. Harvey, Andrew & Scott, Andrew, 1994. "Seasonality in Dynamic Regression Models," Economic Journal, Royal Economic Society, vol. 104(427), pages 1324-1345, November.
    2. Lester C Hunt & Guy Judge, 1996. "Evolving Seasonal Patterns In Uk Energy Series," World Scientific Book Chapters,in: The Uk Energy Experience A Model or A Warning?, chapter 19, pages 259-270 World Scientific Publishing Co. Pte. Ltd..
    3. Jones, Clifton T, 1994. "Accounting for technical progress in aggregate energy demand," Energy Economics, Elsevier, vol. 16(4), pages 245-252, October.
    4. 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 975-985, December.
    5. Harvey, A C, 1985. "Trends and Cycles in Macroeconomic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 216-227, June.
    6. 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.
    7. 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.
    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. 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 183-193, May.
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    11. 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.
    12. 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.
    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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Lester C. Hunt & Guy Judge & Yasushi Ninomiya, 2003. "Modelling underlying energy demand trends," Chapters,in: Energy in a Competitive Market, chapter 9 Edward Elgar Publishing.
    2. Hunt, Lester C. & Ninomiya, Yasushi, 2005. "Primary energy demand in Japan: an empirical analysis of long-term trends and future CO2 emissions," Energy Policy, Elsevier, vol. 33(11), pages 1409-1424, July.
    3. Dilaver, Zafer & Hunt, Lester C., 2011. "Industrial electricity demand for Turkey: A structural time series analysis," Energy Economics, Elsevier, vol. 33(3), pages 426-436, May.
    4. SHIRANI-FAKHR, Zohreh & KHOSHAKHLAGH, Rahman & SHARIFI, Alimorad, 2015. "Estimating Demand Function For Electricity In Industrial Sector Of Iran Using Structural Time Series Model (Stsm)," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 15(1), pages 143-160.
    5. Dilaver, Zafer & Hunt, Lester C, 2011. "Modelling and forecasting Turkish residential electricity demand," Energy Policy, Elsevier, vol. 39(6), pages 3117-3127, June.
    6. Dilaver, Zafer & Hunt, Lester C., 2011. "Turkish aggregate electricity demand: An outlook to 2020," Energy, Elsevier, vol. 36(11), pages 6686-6696.
    7. Lester C. Hunt & Guy Judge & Yasushi Ninomiya, 2003. "Modelling underlying energy demand trends," Chapters,in: Energy in a Competitive Market, chapter 9 Edward Elgar Publishing.
    8. Sa'ad, Suleiman, 2011. "Underlying energy demand trends in South Korean and Indonesian aggregate whole economy and residential sectors," Energy Policy, Elsevier, vol. 39(1), pages 40-46, January.
    9. Ackah, Ishmael, 2015. "On the relationship between energy consumption, productivity and economic growth: Evidence from Algeria, Ghana, Nigeria and South Africa," MPRA Paper 64887, University Library of Munich, Germany.

    More about this item

    Keywords

    energy demand; technical progress; stochastic trend model; seasonality;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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