Finite sample inference methods for dynamic energy demand models

Jean-Thomas Bernard, Nadhem Idoudi, Lynda Khalaf and Clément Yélou
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Jean-Thomas Bernard: Holder of the Chair on the Economics of Electric Energy; Groupe de recherche en économie de l'énergie, de l'environnement et des ressources naturelles [GREEN], Université Laval. Mailing address: Pavillon J.-A.-De Sève, Ste-Foy, Québec, Canada, G1K 7P4, Postal: Holder of the Chair on the Economics of Electric Energy; Groupe de recherche en économie de l'énergie, de l'environnement et des ressources naturelles [GREEN], Université Laval. Mailing address: Pavillon J.-A.-De Sève, Ste-Foy, Québec, Canada, G1K 7P4
Nadhem Idoudi: Conseiller Coûts et caractéristiques de la consommation, Direction des Affaires réglementaires et tarifaires, Hydro-Québec Distribution, and Groupe de recherche en économie de l'énergie, de l'environnement et des ressources naturelles [GREEN], Université Laval. Mailing address: 75, boul. René-Lévesque ouest, 2e étage, Montréal, (Québec) H2Z 1A4, Postal: Conseiller Coûts et caractéristiques de la consommation, Direction des Affaires réglementaires et tarifaires, Hydro-Québec Distribution, and Groupe de recherche en économie de l'énergie, de l'environnement et des ressources naturelles [GREEN], Université Laval. Mailing address: 75, boul. René-Lévesque ouest, 2e étage, Montréal, (Québec) H2Z 1A4
Lynda Khalaf: Holder of the Canada Research Chair in Environment; Centre interuniversitaire de recherche en économie quantitative (CIREQ) and Economics Department, Carleton University, Loeb Building 1125 Colonel By Drive, Ottawa, Ont., Canada K1S 5B6, Postal: Holder of the Canada Research Chair in Environment; Centre interuniversitaire de recherche en économie quantitative (CIREQ) and Economics Department, Carleton University, Loeb Building 1125 Colonel By Drive, Ottawa, Ont., Canada K1S 5B6

Journal of Applied Econometrics, 2007, vol. 22, issue 7, pages 1211-1226

Abstract: This paper considers finite sample motivated inference methods in dynamic energy demand models, in which case commonly used econometric methods remain asymptotic. We focus on structural stability, and on exact confidence set estimation of elasticities. We account for intractable and nuisance parameter dependant distributions through Monte Carlo test procedures. For long-run elasticities which depend on parameter ratios, we assess available asymptotic and exact methods with Fieller based alternatives. Fieller based and exact methods invert approximate and exact relevant test criteria (respectively) and may lead to unbounded set estimates. Our empirical results underscore the importance of using identification-robust inference methods. Copyright © 2007 John Wiley & Sons, Ltd.

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