Asymmetric Price Responses and the Underlying Energy Demand Trend: Are they Substitutes or Complements? Evidence from Modelling OECD Aggregate Energy Demand

Olutomi Adeyemi, David Broadstock, Mona Chitnis, Lester Hunt and Guy Judge

No 121, Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) from Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey

Abstract: A number of energy demand studies have considered the importance of modelling Asymmetric Price Responses (APR), for example, the often-cited work of Gately and Huntington (2002). Griffin and Schulman (2005) questioned the asymmetric approach arguing that this is only capturing energy saving technical progress. Huntington (2006), however, showed that for whole economy aggregate energy and oil demand there is a role statistically for both APR and exogenous energy saving technical change. In a separate strand of the literature the idea of the Underlying Energy Demand Trend (UEDT) has been developed, see for example Hunt et al. (2003a and 2003b) and Dimitropoulos et al. (2005). They argue that it is important, in time series energy demand models, to allow for stochastic trends (or UEDTs) based upon the structural time series/dynamic regression methodology recommended by Harvey (1989, 1997). This paper attempts to bring these strands of the literature together by conducting tests for the UEDT and APR in energy demand models within both a panel context (consistent with the Huntington, 2006 approach) and the structural time series modelling framework. A set of tests across a range of specifications using time-series and panel data are therefore undertaken in order to ascertain whether energy saving technical change (or the more general UEDT) and APR are substitutes for each other when modelling energy demand or whether they are actually picking up different influences and are therefore complements. Using annual whole economy data for 17 OECD countries over the period 1960 – 2004 the results suggest that in general the UEDT and ARP are complementary estimation methodologies when modelling aggregate energy demand. It is argued therefore that energy demand modellers should not assume at the outset that one method is superior to the other. Moreover, wherever possible, a general model (be it in a time series or panel context) that includes a ‘non linear UEDT’ and APR should be initially estimated, and only if accepted by the data should symmetry and/or a more restrictive UEDT be imposed.

Keywords: Energy Demand; OECD; Asymmetric Price Responses; Underlying Energy Demand Trend. (search for similar items in EconPapers)
JEL-codes: C22 C23 C52 Q41 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2008-10
New Economics Papers: this item is included in nep-cba and nep-ene
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Published in Energy Economics, 32(5), 2010, pp. 1157-1164. (Revised Version)

Downloads: (external link)
https://repec.som.surrey.ac.uk/seeds/SEEDS121.pdf (application/pdf)

Related works:
Journal Article: Asymmetric price responses and the underlying energy demand trend: Are they substitutes or complements? Evidence from modelling OECD aggregate energy demand (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sur:seedps:121

Access Statistics for this paper

More papers in Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) from Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey Contact information at EDIRC.
Bibliographic data for series maintained by Mona Chitnis ().